HELOC Balances Have Risen 27%—So Why Do Financial Advisers Agree It’s Still the Best Option for Certain Homeowners?

Arecent report from the New York Federal Reserve Bank revealed that U.S. consumer debt reached a record high of $18.2 trillion in the first quarter of 2025. Mortgages accounted for the largest portion, totaling $12.8 trillion—an increase of $199 billion from the last quarter in 2024.

Serious delinquency rates also rose, with 4.3% of total debt now classified as delinquent.

Notably, balances on home equity lines of credit (HELOCs) were up $6 billion, rising to $402 billion in total. That’s $85 billion above the low that was reached in the first quarter of 2022.

This sharp increase comes as no surprise, given that HELOCs typically offer lower interest rates compared to personal loans and credit cards, along with higher borrowing limits. At a time when inflation continues to be high and homeowners find themselves in dire need of extra funds, HELOCs are clearly as popular as ever—but is it the right money move for you?

What is a HELOC?

A HELOC allows you to tap into your home equity, which is the difference between your home’s value and what you owe on your mortgage. Instead of a lump sum of money, you’ll receive a credit limit (typically 80% to 85% of your equity) that you can draw from as you want to. In most cases, HELOCs are tied to a variable interest rate, which will fluctuate based on market conditions.

Typically, you access the funds through your bank, a check, wire transfer or, sometimes, a credit card.

“HELOCS are usually used for big-ticket items, like home remodeling projects or long-term care medical expenses. I had to update my home’s foundation, so I took out a HELOC, received the money to pay for the repairs and quickly paid off the loan,” says Shelby Rothman, certified financial planner and founder at EnJoy Financial in Los Angeles.

Why HELOCs have become so popular in recent years

Rothman explains that your home equity is one of the most, if not the most, valuable assets you own. A HELOC can provide you with a significant amount of money that can be accessed very quickly and for a specific purpose. With a HELOC, you don’t have to deal with the high expense or hassle of refinancing.

“Many homeowners have ultra low rates on their current mortgage and don’t want to lose that rate with a refinance. A HELOC keeps the current mortgage and goes behind it in a second lien,” explains Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation in Phoenix.

“One of the biggest benefits to using a HELOC is that your home continues to rise in value even as you’re using money against it. On the contrary, if you access money from the stock market or a 401(k) loan, you’re missing out on the potential gains as you work to pay the loan back,” Rothman adds.

One good example of how HELOCs are coming in handy these days? Rothman shares she recently worked with clients who wanted to build an Accessory Dwelling Unit, or ADU, in their backyard. They leveraged their home equity with a HELOC as it offered an easy way to access the cash for their project and pay it off in five years. Now, not only have they put an addition onto their home that will increase their value, but they were able to use their own money to do it.

The problem with HELOCs

While HELOCs are an attractive financing solution for a number of reasons, they’re not perfect. Right now, the biggest drawback for homeowners are the current loan rates.

“Since the interest rate on a HELOC is usually variable, it could rise to a point where you aren’t able to pay off the loan,” Rothman says. “Before utilizing a HELOC, you should have a plan to pay it off as quickly as possible.”

She also warns homeowners about using a HELOC too often.

“Doing so can continually eat away at your home equity, especially if you’re unable to pay it off,” Rothman explains.

It’s also important to note that a HELOC can put your home on the line. If you fail to repay your loan, your lender may foreclose your property as it serves as collateral.

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