As Rates Rise, Tapping Home Equity Gets Trickier
Wringing cash from your house can still make sense, but you need to take extra care to nab the best deal on a new loan.
There’s gold in them thar homes. And a growing number of Americans are mining it.
A combination of rising house prices and a decade of bargain-basement mortgage rates has allowed homeowners to amass a record $35.8 trillion in home equity this year — a 2.2% increase from 2025 and almost quadruple the 2012 level, Federal Reserve data shows.
That has proved to be an attractive resource for homeowners looking to finance an upgrade of their property, pay off high-interest debt, fund college or cover living expenses in inflationary times.
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All told, more than 1 million Americans borrowed against their home equity in the first half of 2026, the highest first-half level since 2022, reports data company Intercontinental Exchange.
Variable-rate home equity lines of credit (HELOCs) have been the most popular option, by dollar amounts and number of borrowers. But lately, interest has soared in cash-out refinances, in which an existing mortgage is replaced with a new loan at a new rate. The number of homeowners choosing this rose 12% in the year that ended June 30, and 33% since 2024, while HELOCs edged up just 1%.
This fall’s Fed rate hike, with hints of more to come, has made accessing cash through home equity more expensive. Even with primary and secondary mortgages now in the 7% to 8.5% range, however, they’re still less expensive than other forms of financing and "can make a lot of sense if you are wrapping up high-interest credit card, student or car loans," says Michael Fratantoni, chief economist of the Mortgage Bankers Association.
But the rise in rates does make it imperative to be more strategic about your options. If you’re thinking about tapping home equity, experts suggest these steps.
Choose a loan that best fits your needs.
The key factors to consider are when you need the money, how much you need and how much risk you're willing to take on interest rates. Your answers will determine whether you’d be better off with a flexible line of credit with a variable rate or a fixed-rate loan, either a home equity loan or a cash-out refi.
"A lump-sum need calls for a home equity loan. Ongoing flexibility calls for a HELOC," says Charley Corbett, a certified financial planner who is based in Naples, Fla.
Also consider how rising rates could affect your payments. Steven Rogé, a certified financial planner based in Beverly, Mass., says if a rate increase of one or two percentage points from the initial rate on a HELOC would squeeze your budget, then it is safer to lock in a fixed-rate loan. (You can compare different rate scenarios at mortgagecalculator.org.)
Higher rates are also a key factor in deciding between a cash-out refi and one of the second-mortgage options. Generally, homeowners with first mortgages in the 2% to 5% range will be better off with a HELOC or home equity loan, Corbett says.
Plan, don't rush.
Even with rates rising, you’ll save more in the long run if you take time to be strategic. "When you're in a hurry, that's when mistakes get made," says John Donlon, cofounder of a mortgage broker in Beverly, Mass.
Small adjustments can often generate big savings. For example, paying down enough credit card debt to raise your FICO credit score from, say, 735 to 740 could cut half a point from fees, or at least an eighth of a percentage point off the interest rate you’re offered, Donlon says.
Also check the impact of different loan amounts. Lowering the sum you're borrowing from 75.01% of your home's appraised value to 75% could cut up to a quarter-point off your interest rate, he says.
Shop around.
Data shows rate variations of almost half a percentage point for borrowers with nearly identical credit profiles. Andrea Bopp Stark, senior attorney for the National Consumer Law Center, recommends using AI or shopping websites such as Bankrate to get a sense of the rates and fees you'll face.
You can use an independent mortgage broker to help you shop or get bids on your own from several lenders, including one or two financial institutions with whom you have relationships. With a few competing offers you can then try negotiating lower fees, Stark says.
The uncertain economy may even work to your advantage. When other borrowers are discouraged, Fratantoni says, "a large number of lenders will be eager to work with you."
Whether you're looking to refinance your mortgage or tap into your home's equity with a HELOC, comparing offers from multiple lenders can help you find competitive rates and terms. Use the tool below to explore your home equity options:
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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