HELOC balances post biggest jump since 2005 as homeowners tap equity
Home equity credit lines jumped $23 billion in the third quarter to $481 billion, the largest quarterly rise since 2005, as owners borrow against record housing wealth.
Biggest jump since 2005
Balances on home equity lines of credit jumped by $23 billion in the three months ending September 30, the largest quarterly increase since 2005, according to the Federal Reserve Bank of New York. Outstanding HELOC balances now total $481 billion, marking the 18th consecutive quarterly increase. Balances peaked at roughly $714 billion in the first quarter of 2009.
Total household debt rose $334 billion, or 1.8%, in the third quarter to $19.1 trillion. Mortgage balances rose by $257 billion to $13.4 trillion, though the New York Fed noted about half of that increase came from balances being reported again after a gap in the previous quarter.
- HELOC balancesup $23 billion to $481 billion
- Total household debt$19.1 trillion, up $334 billion
- Mortgage balances$13.4 trillion, up $257 billion
- Share of mortgages at 4% or lower49.1%
- Average rate, $30,000 HELOC7.49%
Why owners are borrowing
Just under half of outstanding mortgages, 49.1%, carried rates of 4% or lower in the second quarter, according to a Realtor.com analysis, leaving many owners reluctant to give up cheap loans. The median price of an existing home was $417,500 in September, up just 1.3% from a year earlier and nearly 54% higher than in September 2019. The average rate on a typical 30-year fixed-rate mortgage is 7.3%, according to Mortgage News Daily.
Mortgage holders collectively had $17.5 trillion in home equity in the third quarter, according to Intercontinental Exchange. Tappable equity rose 1.2%, or $16,600, from a year ago to an average of $204,000 per borrower, and 2.4 million mortgage holders now hold at least $1 million in equity. Douglas Boneparth, a certified financial planner, said: "HELOCs let them borrow against their equity without giving up the low interest rate on their home."
The risks of borrowing against the home
The average interest rate for a $30,000 HELOC was 7.49% as of November 4, according to Bankrate. HELOCs generally carry a variable rate tied to a benchmark such as the prime rate, so payments can move up or down. Many HELOCs have a draw period, often five or 10 years, when typically only interest is paid, followed by a repayment period of 10 or 20 years when both interest and principal are due.
Boneparth warned that payments could double overnight when the repayment period starts. Borrowing against a home to pay off credit cards is trickier, he said, because it turns unsecured debt into debt secured by the roof over the borrower's head. This post summarizes reported facts and our view of the risks. It is not a forecast and not investment advice.
