HELOC Balances Post Biggest Jump Since 2005

American homeowners are treating their houses like a piggy bank with a front porch. Owners now owe $481 billion on home equity lines after adding $23 billion over the summer quarter, a jump CNBC says tops any quarter since 2005, citing New York Fed figures ^[1].

Balances have now grown for 18 quarters running ^[1].

How we got here

• Total household debt rose $334 billion, or 1.8%, to $19.1 trillion in the third quarter, the New York Fed said ^[2].
• Mortgage balances grew $257 billion to $13.4 trillion, still the largest slice of what households owe ^[2].
• Realtor.com counted 49.1% of home loans locked at 4% or less as of the second quarter ^[1].
• ICE puts tappable equity at $204,000 per borrower on average, 1.2% more than a year ago ^[1].

But these lines float. Most track prime, and many shift from paying interest alone to paying down principal once a draw window of 5 to 10 years closes ^[1]. The New York Fed also said 5% of all household debt was in some stage of delinquency, up three-tenths of a point from the second quarter, with early mortgage delinquencies edging higher ^[2].

What it means for you

For an owner sitting on a 3% first mortgage, a HELOC lets you pull cash without giving up that rate. By our math, a $30,000 line at the 7.49% Bankrate average costs about $187 a month in interest-only payments ^[1]. The prime rate sits at 7%, according to the Federal Reserve ^[3], so any move in prime flows straight into that payment. Investors using equity for a down payment should test the deal at a rate a point or two higher.

Zoom out

The total is still far under the $714 billion high hit in early 2009 ^[1]. Yet borrowing against a house you keep, rather than selling it, helps explain thin listings with Mortgage News Daily's 30-year average at 7.3% on Tuesday ^[1].