Rising Rates Make Home Equity Borrowing More Complicated

Homeowners can still tap their equity for cash, but finding the best new-loan deal now takes extra caution.

Homeowners are increasingly cashing in on the value tied up in their properties.

Fueled by higher home prices and years of low mortgage rates, Americans have built a record $35.8 trillion in home equity this year, according to Federal Reserve data. That is 2.2% higher than the prior year and nearly four times the 2012 level.

For many households, that equity has become a useful source of funding for renovations, high-interest debt repayment, college costs or everyday expenses during inflationary periods.

More than 1 million Americans borrowed against home equity in the first half of 2026, the highest first-half total since 2022, according to Intercontinental Exchange.

Variable-rate home equity lines of credit, or HELOCs, remain the most common choice in both dollar volume and borrower count. But cash-out refinances have recently gained momentum, replacing an existing mortgage with a new one at a new rate. The number of homeowners choosing that route rose 12% in the year ended June 30 and 33% since 2024, while HELOC usage increased only 1%.

Recent Federal Reserve rate increases, along with indications of more to come, have made borrowing against home equity more expensive. Even so, primary and second mortgages in the 7% to 8.5% range are still cheaper than many other borrowing options and can be a practical way to consolidate high-interest credit card, student or auto debt, says Michael Fratantoni, chief economist of the Mortgage Bankers Association.

Still, the higher-rate environment means homeowners need to be more deliberate about their choices. Experts recommend taking the following steps before borrowing.

Pick the loan structure that matches your goal.

Key considerations include when you need the money, how much you need and how much interest-rate risk you are willing to accept. Those answers help determine whether a flexible, variable-rate HELOC or a fixed-rate option, such as a home equity loan or cash-out refinance, makes more sense.

“If you need a lump sum, a home equity loan is usually the better fit. If you want ongoing flexibility, a HELOC is the better choice,” says Charley Corbett, a certified financial planner in Naples, Fla.

Borrowers should also think about how additional rate increases could affect monthly payments. Steven Rogé, a certified financial planner in Beverly, Mass., says that if a one- or two-point increase from a HELOC’s starting rate would strain the budget, locking in a fixed rate is the safer move. Rate comparisons can be modeled at mortgagecalculator.org.

Higher borrowing costs also influence the decision between a cash-out refinance and a second mortgage. In general, homeowners with first mortgages in the 2% to 5% range are better off considering a HELOC or home equity loan, Corbett says.

Take your time rather than rushing.

Even in a rising-rate environment, careful planning can save money over the long term. “When you’re in a hurry, that’s when mistakes get made,” says John Donlon, cofounder of a mortgage brokerage in Beverly, Mass.

Small changes can sometimes produce meaningful savings. Donlon says that paying down enough credit card debt to lift a FICO score from 735 to 740 could reduce fees by half a point or trim at least an eighth of a percentage point from the rate offered.

It can also pay to examine the loan amount closely. Reducing the borrowing level from 75.01% of a home’s appraised value to 75% could lower the interest rate by as much as a quarter point, he says.

Compare offers from several lenders.

Data show that borrowers with nearly identical credit profiles can see rate differences of almost half a percentage point. Andrea Bopp Stark, senior attorney at the National Consumer Law Center, advises using AI tools or rate-comparison sites such as Bankrate to understand the rates and fees you may face.

Borrowers can work with an independent mortgage broker or seek quotes directly from several lenders, including one or two institutions where they already have accounts. With multiple offers in hand, they can then try to negotiate lower fees, Stark says.

Current economic uncertainty may even create an advantage for borrowers. Fratantoni says many lenders are eager to win business when others are holding back.