Homeowners Tap Record Equity as Consumer Debt Climbs

Record equity meets rising consumer debt

American homeowners have rarely had as much housing wealth available to them.

ICE's August Mortgage Monitor found that mortgage-holder equity reached $18 trillion in the second quarter, a record. Of that amount, $11.7 trillion was considered tappable equity, held by approximately 47.5 million borrowers. The average borrower with tappable equity had about $212,000 available under ICE's methodology.

At the same time, consumer debt remains substantial.

The New York Fed reported that total U.S. household debt stood at $18.8 trillion at the end of June. Credit card balances increased $21 billion during the second quarter to $1.263 trillion, while auto loan balances rose $28 billion to $1.713 trillion. Non-housing debt increased $48 billion, or 0.9%, during the quarter.

The numbers do not indicate that homeowners broadly are in financial distress. In fact, the New York Fed said 4.7% of outstanding household debt was in some stage of delinquency at the end of June, down slightly from the prior quarter.

But some forms of consumer credit remain under pressure. The share of mortgage balances transitioning into serious delinquency rose to 1.52% in the second quarter from 1.29% a year earlier. Credit-card serious-delinquency transitions were 6.97%, essentially unchanged from 6.93% a year earlier.

For homeowners with substantial equity, those competing forces create an unusual financial backdrop: significant wealth is locked in property while expensive consumer debt remains outstanding.

The equity-access market is changing

Cash-out refinancing remains one way homeowners can convert equity into cash. But the economics have become more complicated because millions of borrowers hold first mortgages originated when rates were substantially lower.

Replacing such a mortgage with a new loan can mean giving up a valuable interest rate on the entire first-lien balance.

That has helped drive second-lien lending.

ICE reported that more than half — 54% — of first-quarter equity extraction came through second liens, the highest share in years. Second-lien withdrawals reached an 18-year high for the first quarter, while cash-out refinance withdrawals reached their highest first-quarter level since 2022.

Nearly 3.9 million homeowners who originated primary mortgages between 2020 and 2022 had subsequently added a second lien, according to ICE. Nearly two-thirds of first-quarter second-lien originations came from those mortgage vintages, as borrowers sought to preserve below-market first-mortgage rates.

The trend is significant because it separates two concepts that are often lumped together: refinancing a mortgage and accessing home equity.

A borrower may have little incentive to refinance a 3% first mortgage, but still have substantial equity that can potentially be accessed through a HELOC or home-equity loan.

HELOC balances keep growing

Federal Reserve data show that this shift is already visible in outstanding balances.

HELOC balances rose $13 billion during the second quarter to $459 billion. The increase marked the 17th consecutive quarterly increase, putting outstanding HELOC balances $142 billion above the low reached in the first quarter of 2022.

ICE reported that average HELOC rates fell to 6.6% in March. Under ICE's assumptions, a borrower accessing $50,000 at that rate would have a payment of roughly $275.

That does not mean a HELOC is necessarily the cheapest or best option for every homeowner. HELOCs can have variable rates, payments can change, and the debt is secured by the property.

But for a borrower with a low-rate first mortgage, a second lien can solve a different problem than a traditional refinance: accessing liquidity without repricing the entire first mortgage.

Cash-out refinances still have a role

The resurgence of second liens does not mean cash-out refinancing has disappeared.

ICE said homeowners withdrew $205 billion of equity during 2025, including $116 billion through second liens. The total was the highest annual equity-withdrawal volume since 2022, while second-lien volume reached its highest annual level since 2007.

Cash-out refinancing can still make sense for borrowers whose existing mortgage rate is closer to current market rates, or when consolidating multiple obligations into a single mortgage better fits the borrower's financial circumstances.

The decision is ultimately driven by the borrower's existing mortgage, the amount of equity available, the cost of the new debt and the purpose of the funds.

The broader market trend, however, suggests that homeowners are increasingly unwilling to sacrifice a valuable first-lien rate merely to unlock equity.

Consumer debt is part of the story

The original 2025 data highlighted debt repayment as an important use of cash-out refinance proceeds. That remains a relevant issue as consumer borrowing expands.

Credit card balances reached $1.263 trillion in the second quarter, up $54 billion from a year earlier. Auto loan balances reached $1.713 trillion, up $58 billion year over year.

For a homeowner carrying high-cost unsecured debt, replacing some of that obligation with home-secured debt can potentially reduce the interest burden. But it also changes the risk attached to the borrowing.

Credit card debt is generally unsecured. A HELOC or cash-out mortgage is secured by the home.

That distinction matters. Converting expensive consumer debt into mortgage-related debt may improve monthly cash flow while increasing the amount of debt tied directly to the property.

Homeowners therefore need to consider not just the interest-rate difference but also the new payment, repayment period, potential rate changes and the consequences of falling behind.

Record equity does not mean every homeowner can tap it

The national equity picture also hides meaningful differences among borrowers and markets.

ICE reported that approximately 813,000 borrowers were underwater in the second quarter, up 44% from a year earlier. Those borrowers were concentrated among FHA and VA borrowers, homeowners who purchased between 2022 and 2025, and markets including Texas and Florida where prices have fallen further from their peaks.

Tappable equity also depends on the individual homeowner's property value and outstanding mortgage balance.

A homeowner with a large balance remaining on a recently purchased property may have far less accessible equity than the national average. Conversely, someone who bought years ago and benefited from substantial home-price appreciation may have significant borrowing capacity.

The $11.7 trillion national figure is therefore an indicator of market potential, not an amount available equally to every homeowner.

A new opportunity for mortgage lenders

The changing equity market creates a different kind of opportunity for mortgage lenders.

Traditional refinance marketing focuses heavily on borrowers who can lower their mortgage rate or payment. Today's equity borrower may have an entirely different profile.

A homeowner with a 3% or 4% first mortgage may not be a conventional refinance candidate. But that same borrower could have hundreds of thousands of dollars in equity and a need for liquidity.

ICE's data indicate that lenders increasingly have to think across the first-lien and home-equity markets rather than treating them as separate opportunities. The company said lenders that can identify, engage and serve borrowers across both mortgage and home-equity channels will be better positioned as consumer demand evolves.

For lenders, that means equity data can become valuable even when a borrower is not a candidate for a rate-and-term refinance.

The risk behind the opportunity

The growth in equity extraction comes with an important caveat: home equity is wealth, but borrowing against it turns that wealth into debt.

For borrowers using equity to consolidate consumer obligations, the immediate payment savings may be meaningful. But the strategy can also extend repayment over a longer period and place the home behind obligations that previously were not secured by the property.

That makes underwriting, borrower education and clear disclosure particularly important as the market expands.

The latest data show a housing market with two seemingly contradictory characteristics: homeowners collectively have record equity, while consumers continue to carry historically large amounts of non-mortgage debt.

That combination is creating sustained demand for ways to unlock housing wealth. And with millions of homeowners still holding low-rate first mortgages, the next phase of the equity-access market may be defined less by traditional cash-out refinancing and more by second liens, HELOCs and other products that allow borrowers to tap equity without giving up their existing mortgage.

The key question for lenders is no longer simply how much equity homeowners have. It is how that equity can be accessed responsibly while preserving the value of the mortgages borrowers already hold.