Home equity lines of credit are back in the conversation, and lenders are pushing them hard.
The pitch is familiar: your house went up in value, so why not put that paper wealth to work?
But a HELOC is not free money, and the rate attached to it has a habit of moving in directions you don't control.
Unlike a fixed-rate mortgage, most HELOCs carry variable rates tied to the prime rate, which follows the Federal Reserve.
When the Fed cut rates in late 2024 and into 2025, HELOC payments did ease, but they started from a painfully high base.
Borrowers who opened lines in 2022 are still paying far more than they budgeted for.
A $50,000 HELOC at 8% costs roughly $333 a month in interest alone if you're paying interest-only during the draw period.
That's the trap: a decade of interest-only payments feels manageable right up until the draw period ends and the full balance amortizes over 15 or 20 years.
So who actually benefits from the HELOC boom?
Home values are elevated, so lenders can offer bigger lines against the same house.
Interest on a HELOC is only tax-deductible if you use the money to buy, build, or substantially improve the home securing the loan.
Use it to consolidate credit cards or fund a vacation, and that deduction disappears.
A credit card default damages your credit score.
A HELOC default puts a lien on your home, and the lender can foreclose.
If your income wobbles or home values dip, you're exposed in a way that unsecured debt never makes you.
None of this means HELOCs are always a bad idea.
If you're funding a renovation that adds real value, have stable income, and can make payments above interest-only, a line can beat a personal loan or a cash-out refinance.
The key is reading the terms: what's the margin above prime, is there a cap on rate increases, what are the closing costs, and what happens at the end of the draw period.
Lenders bury these answers in fine print for a reason.
Tapping equity near a market peak feels smart because the money is there.
But home prices don't climb forever, and rates don't fall on schedule.
Borrowers who treat their house like an ATM tend to learn that lesson the hard way.
Our take: a HELOC is a tool, not a windfall, and the current marketing treats it like the latter.
If you can't explain your own rate, margin, and repayment schedule without looking at the paperwork, you're not ready to sign.
Final Thoughts
Ask what happens if rates rise two points and your income drops at the same time, because that's the scenario lenders won't advertise.