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Home equity loans are enjoying a slight resurgence in this era of higher interest rates, Experian data shows. The increase follows years of home equity loans being an afterthought for homeowners, many of whom preferred cash-out refinancing to tap some of their home equity and usually lower their interest rate in the process.
The upturn is modest at best, however, especially compared to the home refinancing mania in 2021, when many homeowners refinanced their mortgages at now-envious rates.
In this report, Experian illustrates the recent increase in interest in home equity loans, why it still falls short of other recent home refinancing booms we've seen, and what may continue to propel home equity loans in 2025 and beyond.
The Return of the Home Equity Loan
Home equity loans are often earmarked for home renovation projects costing in the tens of thousands of dollars, which is reflected in the average home equity loan amounts we'll reveal below. But homeowners also tap home equity to consolidate credit card debt and otherwise borrow at more favorable terms than those of other types of loans—albeit with eyes wide open to the fact that the lender now has a second lien on their asset.
Monthly home equity loan originations rose from 137,000 per month in June 2023 to 143,100 as of June 2024, a 4.5% increase.
Home Equity Loan Originations, 12-Month Average
Somewhat curiously, the sums borrowed have remained steady over that period, despite higher interest rates and inflation. By June 2024, home equity loan borrowers had an average of $46,700 on each home equity loan origination, less than the average of $48,800 in June 2023.
Average Home Equity Loan Amount
Average home equity loan balances in each state vary widely. Like mortgages, the amounts borrowed for home equity loans are usually related to property values, so it's no surprise to see some high-cost states, such as Hawaii, also have outsize average home equity loans.
Average Home Equity Loan Amount by State
However, home equity loan sizes are quite large in many of the Northern plains states, not especially known for expensive or plentiful housing stock. It could be that at least some home equity loan usage is tied to certain differences in rural housing, particularly in agricultural areas.
How Home Equity Loans Differ From Other Types of Credit
Since homeowners are borrowing from the home equity they already own, borrowing terms may depend more on market conditions and the amount of equity an owner would like to borrow than their credit.
That doesn't mean that credit score plays no factor in the home equity loan rate homeowners receive. A borrower with a FICO credit score of 760 or higher will likely be offered a mortgage with an APR about 1 percentage point lower than a borrower with a 680 FICO score—reducing typical monthly mortgage payments by hundreds of dollars monthly.
Unlike HELOCs, which are more analogous to credit cards (both are lines of credit), home equity loans are typically fixed-term loans, not unlike those for auto loans and personal loans. And home equity loans typically have a fixed rate, which means borrowing costs won't rise (or fall) in the middle of a renovation project.
Home Equity Loans Haven't Replaced Cash-Out Refinances in Scope
Even though cash-out refinancing is off the table for most borrowers, and home equity loan volume is up, home equity usage is still small compared to the cash-out refinance boom of the 2010s. The $79 billion in home equity loan originations in all of 2023 is still dwarfed by cash-out refinance proceeds at their 2020 height, when they reached an annual volume of $450 billion, according to a report from the Federal Housing Finance Agency.
This despite tappable home equity increasing by even more than in the 2010s. Today, U.S. homeowners with mortgages have more than $30 trillion in home equity in total, according to Federal Reserve data. Of that, $11.5 trillion is tappable, according to data from industry observer ICE Mortgage Monitor—an average of $214,000 in tappable equity per homeowner. Most homeowners with a mortgage have at least $100,000 of tappable equity they could borrow.
More Tailwinds for Home Equity Loans
With the Federal Reserve expected to begin cutting its key fed funds rate beginning in September, home equity loans may become even more attractive to homeowners. Meanwhile, mortgages aren't likely to fall enough for many homeowners to consider cash-out refinancing.
And if Washington gets its way, a proposal may make home equity loans much less cumbersome for the prospective homeowner-borrower. Currently, the application process for home equity loans has far more moving parts—title search, appraisals, in-depth documentation of income, for starters—-that are absent in relatively friction-free personal loans. But a pilot program by Freddie Mac (half of the quasi-governmental duo that purchases many of the nation's home mortgages) may make home equity loans eligible for purchase.
The proposals would make home equity loans another type of qualified loan made by banks and other lenders who can then sell the loans on to Freddie Mac—just as they currently do with qualified mortgages. Without having to keep second mortgages on their books, banks may become more comfortable making home equity loans more appealing to homeowners.
Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO® Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data.
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