U.S. homeowners are sitting on a record $34.5 trillion in home equity, and more are tapping that mountain of accessible assets.
Home equity available to homeowners has risen by $600 million since the first quarter of 2024, according to LendingTree. Home equity loan originations, including closed-end equity loans and lines of credit, or HELOCs, have risen 7.2% in the last year, according to the Mortgage Bankers Association.
The average size of a home-equity loan offer from lenders in the first half of the year in Maryland was $168,000, and $123,000 in Virginia. Nationally, the average was $140,000.
Like a first mortgage, qualifying for a home-equity loan requires a considerable amount of paperwork — including work history, credit history, income verification, and recent bank activity — and closing on an equity loan can take several weeks. But, not always.
“It can take as long as 40 days, but some lenders claim they can turn it around within 12 to 15 days,” said Marina Walsh, vice president of industry analysis, research and economics at the Mortgage Bankers Association. “That is something lenders are very focused on: How can they improve this? How can we automate functions, with automated underwriting or other ways to speed up the process.”
Appraisals required for equity loans
Similar to a home purchase mortgage loan, an equity loan requires an appraisal of the property, but lenders are using tools to speed up that process, too. And to make it less intrusive.
“Perhaps instead of doing a full appraisal, there is just a drive-by of the exterior of the home instead of the exterior and interior inspection that don’t necessarily involve having to go see the home. So I would say it is moving to more automation,” Walsh said.
A home-equity loan carries a higher interest rate, averaging 8.5% as of August, according to Bankrate, but that can vary widely based on loan amount, terms and credit score. Nationally, the monthly payment of an equity loan based on the average size of loan approved is equal to 13% of average household income, though that also varies widely.
Borrowers should consider additional monthly expenses, and lenders will factor them into the loan-to-income ratios during the underwriting review.
Not all homeowners who apply for a loan are approved for it, with the closing rate at 50%, according to the MBA. Lenders have tightened lending standards, but Walsh said the relatively low closing rate could also be because homeowners who are preapproved for an equity loan ultimately get cold feet.
“A lot of homeowners remember the great financial crisis, and they are nervous about over-leveraging their home,” Walsh said. “So it could be skittishness on the part of homeowners themselves who back out, homeowners who think maybe I want to hold off on that home renovation for now, and not take out this loan.”
Home equity loans rising for debt consolidation
The reasons for tapping home equity are also shifting.
By known usage. Home renovations slowed to 46% of lending volume in 2024, down from 56% in 2023, and 65% in 2022. Debt consolidation grew to 39% by volume in 2024, from 33% in 2023 and just 25% of loans used to pay off other higher-interest debt in 2022, according to MBA data.
Home equity loans are considerably more attractive to homeowners than straight forward “cash-out” refinancings, largely because first loan mortgage rates, while down from last year’s 20-plus-year highs, remain higher than existing first loan rates most current homeowners who have equity to tap have.
“It could be that the borrower just does not want to touch their first mortgage, because they are sitting on a very low first mortgage rate. So they use a HELOC as an alternative to a whole cash-out refinancing, in which the entire debt on the home is refinanced,” Walsh said.
The two most popular loans are closed-end equity loans and HELOCs. For closed-end equity loans, the borrower takes on a second loan against their property (at that higher rate) for a percentage of equity available, and has a fixed monthly payment. In comparison, HELOCS serve as an open-ended line of credit and can be accessed, much like a credit card, for any amount at any time during a fixed period up to the total amount approved, giving borrowers more freedom to choose how much to access and when.
HELOC loans generally have a variable interest rate after an initial period. Up-front equity loans generally have fixed rates for the life of the loan.
Lenders expect home equity loan debt outstanding to increase by another 6.6% this year, and 4.1% in 2026.
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