Home equity lines of credit are surging in popularity, and the biggest risk has nothing to do with interest rates or monthly payments.
Using a HELOC to consolidate debt means “turning unsecured debt into secured debt,” Bank of America warned on its Better Money Habits resource page. This shift puts your home on the line for credit card charges, medical bills, and other purchases you already made.
Outstanding HELOC balances hit $446 billion in the first quarter of 2026, $129 billion above the low reached in the first quarter of 2022, the New York Fed reported.
The gap between what homeowners expect from a HELOC and what the fine print requires is where the real danger is.
BofA warns HELOCs convert unsecured debt into secured debt
The core risk is structural rather than financial, because credit card debt, medical bills, and personal loans are all unsecured obligations. That unsecured status means a lender cannot seize your home if you fall behind on those payments.
A HELOC changes that protection by placing your home directly at risk. “You’re using your home as collateral,” Bank of America stated. “If you default on payments, the lender could foreclose on your home.”
Homeowners who consolidate credit card balances into a HELOC trade a manageable collections risk for a foreclosure risk tied to their primary residence.
The bank explicitly cautioned against using a HELOC for “vacations or an extravagant wedding,” since those purchases would be backed by the borrower’s home.
Variable rates can push HELOC payments beyond what borrowers planned
The average HELOC rate stood at 7.44% as of July 29, 2026, with individual offers ranging from 3.99% to 11.80%, according to Bankrate’s national survey of lenders.
That initial rate is not locked in for the life of the loan.
“Interest rates on HELOCs may vary from month to month based on an underlying index,” Bank of America noted.
A rate that starts at 8% could climb to 12% or higher over the loan’s life, with lifetime caps often set at 18%, according to The Mortgage Reports.
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The Consumer Financial Protection Bureau warned that monthly payments can change “even if you don’t draw more money” from the credit line.
Most HELOCs have a 10-year draw period followed by a 20-year repayment window, Bank of America stated. The shift from draw period to repayment can “double or triple” monthly obligations as principal payments kick in, according to The Mortgage Reports.
A second-lien foreclosure can happen even when mortgage payments stay current
Homeowners often assume that keeping their first mortgage current protects them from foreclosure on a HELOC, but that assumption is incorrect.
“A lender can start foreclosure proceedings on a home equity loan or HELOC independently of your primary mortgage,” The Mortgage Reports reported.
“If you fall behind or can’t repay the loan on schedule, you could lose your home,” the CFPB stated in its consumer brochure on HELOCs.
Related: HELOCs now require $120K upfront and most borrowers have no clue
HELOCs are recourse loans, meaning borrowers remain personally liable for any balance left after a foreclosure sale, Denbeaux Law noted.
A borrower could lose the home in foreclosure and still owe the remaining balance through a deficiency judgment, the firm explained.
The IRS may treat forgiven HELOC debt as taxable income, creating a secondary financial hit after the property loss, Denbeaux Law added.
HELOC balances are climbing as homeowners preserve low-rate first mortgages
U.S. homeowners accumulated more than $11 trillion in additional home equity between 2020 and 2022, Federal Reserve data showed, and HELOC balances have followed.
Balances reached $446 billion in the first quarter of 2026, rising 10.9% year over year, Wolf Street reported using Federal Reserve data.
Outstanding balances now sit $129 billion above the low reached in the first quarter of 2022, the New York Fed’s Household Debt and Credit Report showed.
Andy Walden, head of mortgage and housing market research at ICE, said homeowners prefer HELOCs over refinancing to preserve their low-rate mortgages.
“Millions of homeowners are sitting on first mortgages with rates well below current market levels, making second liens and HELOCs an attractive way to access equity without giving up those loans,” Walden said.
Homeowners are choosing HELOCs over cash-out refinances because they can keep low-rate first mortgages intact while accessing equity separately.
The 90-day-plus delinquency rate on HELOCs stood at 0.95% in the first quarter, roughly matching 2018 and 2019 levels, Wolf Street reported.
Average credit card rates reached 22.15% for accounts carrying balances in May 2026, Federal Reserve data showed.
That 15-percentage-point gap between credit card rates and HELOC rates explains why borrowers view the product as a bargain despite the collateral risk.
HELOC rates can rise over time, causing monthly payments to increase sharply.
When a HELOC works vs. when it puts your home at risk
Bank of America identified home renovations that increase property value as the strongest use case for a HELOC.
Interest paid on a HELOC may be tax-deductible when the funds are used to “buy, build or substantially improve your home,” the bank noted.
Emergency expenses such as medical bills or disaster recovery represent another defensible use, though only after exhausting savings. Consolidating high-interest credit card debt can work if the borrower commits to not running up new card balances, Bank of America stated.
The bank warned that borrowers who consolidate and then resume spending create a compounding problem that puts their home at greater risk.
Lenders can also “freeze, reduce, or close your credit line” if home values drop or credit scores decline, meaning borrowers who treat a HELOC as an emergency fund may find the line frozen precisely when they need it most.