In this article:
Thanks to rising home prices, U.S. homeowners are sitting on significantly more value in their homes than even a couple years ago. The average homeowner gained more than $53,000 in equity in 2021, according to an estimate by mortgage industry observer Black Knight, bringing the average amount of home equity per borrower to $178,000.
But instead of accessing the cash in their homes by selling, some homeowners choose to borrow against their equity. Home equity lines of credit (HELOCs) are a type of credit homeowners can use to borrow up to a certain percentage of their home's appraised value.
When issuing a HELOC, lenders consider the home's value and the remaining mortgage balance to determine how much a homeowner might be able to borrow. Typically, the combined loan-to-value (CLTV) can't exceed a percentage of the appraised home value. An 80% CLTV is typical for many lenders.
Despite ballooning equity, however, what used to be one of the more popular ways to access that wealth continues to decline, as it had throughout the 2010s. To name one potential factor, new lending options cropping up in recent years likely contributed to this dropoff in popularity. And there are certainly more than a few drawbacks to HELOCs to consider, among them:
- Risk to the borrower: A HELOC is a type of second mortgage that uses the borrower's home to secure the line of credit. If a borrower defaults on a HELOC, they may lose their home just as if they were to default on a mortgage.
- Lender minimums: You may be required to borrow $10,000 or more depending on the HELOC lender's requirements.
- Borrower effort: There are generally more steps involved in obtaining a home equity line of credit than other types of loans. The amount of information lenders will want to collect is similar to what's needed when borrowers applied for their original home mortgage.
- Tax complications: Unlike mortgage interest, HELOC interest may or may not be deductible, depending on an owner's tax situation or use of the HELOC proceeds.
With all these potential impediments, it's perhaps no surprise that the friction created by the HELOC process—versus that of, say, a personal loan, or even a new cash-out refinance mortgage―resulted in fewer homeowners considering HELOCs in recent years.
HELOC Balances Continued to Decline in 2021
Explosive growth in home prices (and, by extension, home equity) in 2021 didn't stop a continual decline in HELOC balances. Fewer homeowners employ HELOCs for financing, according to Experian data, and existing HELOC borrowers continue to pay down their existing balances.
| Snapshot: Total HELOC Debt | ||||
|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2020-2021 Change | |
| Total outstanding HELOC debt | $375.86B | $340.11B | $295.51B | -13.1% |
Source: Experian data from the third quarter (Q3) of each year
While balances for many other types of debt increased in 2021—primary mortgages increased by 7.6% to $11.3 trillion in 2021, for instance—HELOC balances continued to fall precipitously. The 13.1% decline in overall HELOC balances was the most rapid decline of any of the major types of consumer debt Experian tracks.
| Snapshot: Average HELOC Balance | ||||
|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2020-2021 Change | |
| Average HELOC balance | $44,923 | $41,954 | $39,556 | -5.7% |
Source: Experian data from the Q3 of each year
Average balances declined as well. The average HELOC balance in Q3 2021 was $39,556, down 5.7% from the $41,954 average a year prior.
Average HELOC Balances Highest Among Generation X
Average HELOC balances differed little by generation in 2021, ranging from an average of $33,201 for baby boomer borrowers to $45,138 for Generation X.
As with other types of loans, the generational differences among HELOC borrowers follow a familiar pattern. Generations with more family obligations—children still living at home, car payments and perhaps student loans—are more likely to have larger average HELOC balances. Usually, that means millennials and Generation X.
| Average HELOC Balance by Generation | |||
|---|---|---|---|
| Generation | 2020 | 2021 | Change |
| Generation Z (18-24) | $36,107 | $36,590 | +1.3% |
| Millennials (25-40) | $40,496 | $41,441 | +2.3% |
| Generation X (41-56) | $46,660 | $45,138 | -3.3% |
| Baby boomers (57-75) | $41,498 | $38,297 | -7.7% |
| Silent generation (76+) | $35,929 | $33,201 | -7.6% |
Source: Experian data from Q3 of each year; ages as of 2021
All but the youngest homeowners had lower HELOC balances in 2021 than the previous year. This is partially attributable to a broader trend of fewer homeowners using HELOCs to borrow in recent years, despite increases in home values across the U.S. And while younger homeowners may have yet to begin paying off their HELOC—draw periods can be between five and 15 years—older borrowers are more likely to be longtime homeowners who are paying down a HELOC that was established several years ago.
HELOC Balances Largely Reflect Regional Home Prices
If average home prices are significantly larger in some markets than others, it stands to reason that HELOC balances there will be larger as well, as there is more available equity for homeowners to potentially borrow against. The patterns in our analysis seemingly bear that out. As such, the average HELOC borrower in Hawaii (the state with the highest average home price) carried a balance of $68,866 in 2021, more than triple the average HELOC balance of $21,629 for HELOC borrowers in Wisconsin, where home prices are significantly more modest.
But for most HELOC borrowers, no matter where they live, average HELOC balances continued to decline in all but some of the hottest housing markets in the U.S. in 2021. Part of the decline is attributable to HELOCs becoming less popular among borrowers in recent years, with few newer HELOCs replacing older loans with declining balances.
| Average HELOC Balance by State | |||
|---|---|---|---|
| 2020 | 2021 | Change | |
| Alabama | $34,739 | $32,832 | -5.5% |
| Alaska | $44,663 | $41,053 | -8.1% |
| Arizona | $41,742 | $39,439 | -5.5% |
| Arkansas | $33,076 | $32,119 | -2.9% |
| California | $63,925 | $60,253 | -5.7% |
| Colorado | $43,477 | $42,570 | -2.1% |
| Connecticut | $52,218 | $47,517 | -9% |
| Delaware | $41,577 | $40,410 | -2.8% |
| District of Columbia | $67,368 | $68,171 | +1.2% |
| Florida | $50,803 | $47,668 | -6.2% |
| Georgia | $39,741 | $37,265 | -6.2% |
| Hawaii | $70,090 | $68,866 | -1.7% |
| Idaho | $35,908 | $36,596 | +1.9% |
| Illinois | $37,485 | $34,777 | -7.2% |
| Indiana | $26,504 | $25,562 | -3.6% |
| Iowa | $25,138 | $23,889 | -5% |
| Kansas | $23,872 | $23,492 | -1.6% |
| Kentucky | $30,009 | $28,635 | -4.6% |
| Louisiana | $42,810 | $41,239 | -3.7% |
| Maine | $32,819 | $29,634 | -9.7% |
| Maryland | $43,578 | $40,917 | -6.1% |
| Massachusetts | $49,436 | $47,679 | -3.6% |
| Michigan | $30,970 | $29,717 | -4% |
| Minnesota | $29,944 | $28,404 | -5.1% |
| Mississippi | $34,798 | $32,431 | -6.8% |
| Missouri | $27,977 | $27,168 | -2.9% |
| Montana | $41,906 | $43,985 | +5% |
| Nebraska | $29,194 | $26,548 | -9.1% |
| Nevada | $49,324 | $44,844 | -9.1% |
| New Hampshire | $38,372 | $37,382 | -2.6% |
| New Jersey | $55,113 | $52,094 | -5.5% |
| New Mexico | $35,893 | $33,560 | -6.5% |
| New York | $54,233 | $50,666 | -6.6% |
| North Carolina | $31,086 | $28,990 | -6.7% |
| North Dakota | $31,139 | $30,899 | -0.8% |
| Ohio | $29,177 | $28,176 | -3.4% |
| Oklahoma | $37,664 | $36,302 | -3.6% |
| Oregon | $35,988 | $32,624 | -9.3% |
| Pennsylvania | $36,201 | $35,197 | -2.8% |
| Rhode Island | $44,501 | $41,883 | -5.9% |
| South Carolina | $33,836 | $30,923 | -8.6% |
| South Dakota | $29,643 | $28,595 | -3.5% |
| Tennessee | $41,847 | $40,684 | -2.8% |
| Texas | $49,300 | $49,300 | 0% |
| Utah | $40,487 | $40,556 | +0.2% |
| Vermont | $33,340 | $31,810 | -4.6% |
| Virginia | $39,791 | $36,746 | -7.7% |
| Washington | $46,981 | $45,073 | -4.1% |
| West Virginia | $30,305 | $28,292 | -6.6% |
| Wisconsin | $22,814 | $21,629 | -5.2% |
| Wyoming | $44,071 | $41,023 | -6.9% |
Source: Experian data from Q3 of each year
Home values didn't seem connected to changes in overall average HELOC balances, however. The sharpest declines (in percentage terms) were observed in both high- and moderately priced housing markets. Homes in relatively higher-priced Northeastern states like Connecticut as well as Midwestern states like Nebraska saw HELOC balances fall significantly.
| States With the Largest Average HELOC Balance Declines | |||
|---|---|---|---|
| 2020 Average Balance | 2021 Average Balance | Change | |
| Maine | $32,819 | $29,634 | -9.7% |
| Oregon | $35,988 | $32,624 | -9.3% |
| Nevada | $49,324 | $44,844 | -9.1% |
| Nebraska | $29,194 | $26,548 | -9.1% |
| Connecticut | $52,218 | $47,517 | -9.0% |
Source: Experian data from Q3 of each year
The few places where HELOC balances grew could be found among the hottest real estate markets, including many Western states experiencing population growth and urban Washington, D.C. (Texas' average HELOC balance is technically unchanged from 2020.)
| States With the Largest Average HELOC Balance Increases | |||
|---|---|---|---|
| 2020 Average Balance | 2021 Average Balance | Change | |
| Montana | $41,906 | $43,985 | +5.0% |
| Idaho | $35,908 | $36,596 | +1.9% |
| District of Columbia | $67,368 | $68,171 | +1.2% |
| Utah | $40,487 | $40,556 | +0.2% |
| Texas | $49,300 | $49,300 | 0% |
Source: Experian data from Q3 of each year
HELOCs May Become More Popular as Mortgage Rates Rise
All the trends outlined above raise an obvious question: Are HELOCs on their way out? If current trends continue, the answer would appear to be yes. But, in reality, the answer isn't so clear.
Applications for mortgages have dried up in recent months, due to a number of factors. Housing inventory remains chronically low in much of the country, and a record number of Americans say it's a bad time to buy a home. Meanwhile, mortgage interest rates are climbing, which not only shuts out many potential homeowners who are still trying to find a home to purchase, but also existing homeowners who previously may have been candidates for a mortgage refinance (few homeowners refinance an existing low rate mortgage to a higher-rate mortgage).
While no one can be certain, there are some signs that lenders are making the HELOC process more friendly for the homeowner than in previous years. (Indeed, during the pandemic, many major mortgage lenders weren't engaging in HELOC lending at all, due in part to extraordinary economic uncertainty.) One online lender is proposing to streamline its HELOC application process later this year. And those traditional mortgage lenders who shut the door on new HELOCs at the start of the pandemic are now reconsidering the market, in light of rising interest rates.
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.
FICO® is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.
