Home prices have soared, but borrowing against their homes is surging among U.S. homeowners

【Financial News, New York = Lee Byung-chul, correspondent】 U.S. homeowners are increasingly borrowing against their homes instead of selling them. They are seeking cash by tapping the equity gained from rising home prices while keeping the mortgages they took out at low rates in the past. In the third quarter this year, outstanding home equity line of credit (HELOC) balances saw their biggest increase in 21 years, the largest since 2005.
According to a household debt report released on the 10th local time by the Federal Reserve Bank of New York (FRBNY), U.S. HELOC balances reached $481 billion in the third quarter this year, up $23 billion from the previous quarter. It was the largest quarterly increase since 2005. HELOC balances have risen for 18 consecutive quarters.
A HELOC is a financial product that lets borrowers take out money as needed, up to a set limit, using as collateral the home equity—the home’s market value minus its outstanding mortgage balance. It allows homeowners to obtain additional funds while keeping their existing mortgage.
The main reason for the surge in HELOC use is the persistence of high interest rates in the U.S. housing market. According to real estate information firm Realtor.com, as of the second quarter this year, 49.1% of all U.S. mortgages had an annual interest rate of 4% or less. By contrast, the average rate on a 30-year fixed-rate mortgage currently stands at 7.3% annually.
Homeowners who sell their current home and buy another would have to give up the low mortgage rate they secured in the past. Analysts say this is fueling a growing trend of homeowners staying in their current homes rather than moving and borrowing against the increase in their home’s value.
U.S. home prices have also risen sharply. According to the National Association of Realtors (NAR), the median price of an existing home was $417,500 last September, up about 54% from the same month in 2019.
According to financial data firm Intercontinental Exchange (ICE), U.S. mortgage holders’ home equity totaled $17.5 trillion in the third quarter this year. Of that, the home equity actually available for additional borrowing averaged $204,000 per borrower. Some 2.4 million mortgage holders had at least $1 million in home equity.
Douglas Boneparth, president of New York wealth management firm Bone Fide Wealth, told CNBC that “a HELOC lets you borrow against your home equity without giving up the low mortgage rate on your existing home.”
However, as more people borrow additional funds against their homes, concerns are growing about the interest burden on households. According to financial information firm Bankrate, as of the 4th, the average annual rate on a $30,000 HELOC was 7.49%.
Most HELOCs have variable rates, so interest costs could rise if rates increase in the future. Another risk is that borrowers pay only interest at first, then must begin repaying the principal after a set period.
Boneparth warned that “once principal repayments begin, monthly payments could double overnight,” adding, “If your financial plan is manageable only at current interest rate levels, it cannot be considered a sound plan.”



[email protected] Lee Byung-chul, correspondent Reporter