U.S. homeowners withdrew $47 billion in home equity during the first quarter of 2024, according to data from Intercontinental Exchange (ICE). This marks the highest first-quarter total since 2021 as owners increasingly leverage property value through home equity lines of credit (HELOCs) and cash-out refinances to access liquidity without abandoning low-interest mortgage rates secured during the pandemic.
Why Homeowners Are Choosing HELOCs Over Refinancing
The current housing market is defined by the "lock-in effect," where millions of homeowners hold mortgages with interest rates between 3% and 4%, according to ICE. Because current 30-year fixed-rate mortgages hover above 6.5%, as reported by Mortgage News Daily, many borrowers are avoiding total mortgage refinances to protect their existing low rates.
Instead, second liens—including HELOCs and home equity loans—accounted for 54% of total equity withdrawals in the first quarter of 2024. By utilizing a second lien, a homeowner can access cash while keeping their primary mortgage rate intact. This strategy remains popular among those who originated their first mortgages between 2020 and 2022.
Understanding the Costs of Equity Access
While home equity provides a significant financial buffer, it is not a low-cost source of capital. "Home equity is not free money," says Joon Um, a tax advisor with Secure Tax & Accounting. Borrowers must weigh the utility of the funds against the interest rates and closing costs associated with the debt.
Comparison of Equity Access Methods
| Feature | Cash-Out Refinance | Home Equity Loan | HELOC |
|---|---|---|---|
| Interest Rate | Fixed (New Mortgage) | Fixed | Variable |
| Closing Costs | 2% to 5% of loan | Moderate | Generally lower |
| Repayment | Amortized over 15–30 yrs | Fixed term | Draw period followed by repayment |
A cash-out refinance requires replacing the current mortgage, which necessitates paying closing costs—including title insurance and appraisal fees—and resetting the interest rate for the entire loan balance. In contrast, home equity loans provide a lump sum with a fixed rate, while HELOCs offer a revolving line of credit. According to Bankrate, the average rate for a 15-year home equity loan is approximately 8.2%, while HELOCs currently average around 7.43%.
Risks of Using Home Equity
Financial advisors warn that tapping equity for discretionary spending can lead to long-term debt traps. George Gagliardi, founder of Coromandel Wealth Strategies, suggests that homeowners should limit equity usage to capital improvements—such as essential home repairs—that may increase the property’s value. Using equity to fund vacations or lifestyle expenses can result in years of interest payments on depreciating experiences.
Additionally, HELOC borrowers face specific interest rate risks. Because HELOCs typically carry variable rates tied to the prime rate, payments can increase if benchmark rates rise. Borrowers must also account for the transition from the "draw period," where only interest is paid, to the "repayment period," where principal payments begin, potentially causing a significant jump in monthly obligations.
As of mid-2024, total U.S. home equity remains near $11 trillion, according to ICE. While this provides a substantial safety net for households, the cost of borrowing remains elevated, requiring homeowners to carefully assess their budget before leveraging their primary asset.
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