Thanks to soaring property values, U.S. homeowners held approximately $35.8 trillion in home equity as of 2026’s second quarter. Last year the median net housing value — a home’s value minus the debts secured against it — was $230,000, according to the Federal Reserve’s most recent Survey of Consumer Finances.
Homeowners can take out loans against their equity to finance renovations, consolidate debt or even start a business. And because home-equity loans commonly have fixed interest rates that are often more competitive than those of credit cards or personal loans, they’re often touted as an affordable way to borrow. Still, there are risks associated with home-equity loans that shouldn’t be ignored.
Consequences of default
Failing to pay any debt could damage your credit and, in some cases, result in a lawsuit and judgment against you. But there’s a key difference between secured and unsecured debt.
Personal loans, for example, are unsecured. There’s no specific asset for your lender to seize if you don’t repay it. A home-equity loan is a second mortgage that’s secured by your home itself. If you fail to repay it, your lender could come after your property.
Ashley Morgan, attorney and owner at Ashley F. Morgan Law, PC, in Chantilly, Virginia, said she commonly sees consumers use home-equity loans to consolidate higher-interest debt, like credit cards. That can be a cost-saving measure, but a risky one.
“If you cannot afford the payments, the lender may have the right to foreclose on your home, even if you’re completely current on your original mortgage,” Morgan said.” I think people often overlook the fact that a second mortgage is still a mortgage.”
Morgan added that while home-equity loan balances are commonly smaller than primary mortgage balances, the consequences of defaulting can be the same. She also said a home-equity lender may be able to initiate foreclosure proceedings even if your primary mortgage lender doesn’t.
Consider the total cost
In the context of debt consolidation, a home-equity loan can mean a lower interest rate and lower monthly payments. The total loan cost, however, could still be higher than expected.
“Someone might consolidate credit card debt into a 15- or 20-year home-equity loan and significantly reduce their monthly payments,” Morgan said. “But stretching repayment over that many years can mean paying substantially more interest than expected, even at a lower rate.”
David O’Malley, financial adviser at Edward Jones in Palm Beach, Florida, said borrowers need to look at the total cost of a home-equity loan, not just the interest rate or monthly payment.
“Borrowers should review loan terms carefully, including APR, repayment structure, potential balloon payments, whether the rate is fixed or variable, and any prepayment provisions,” he said.
Less flexibility later on
Home-equity loans also leave homeowners with fewer borrowing options in an emergency.
“Home equity isn’t just money sitting in a house. It can provide financial flexibility if someone needs to sell, relocate, retire or deal with an unexpected financial problem,” Morgan said.
Morgan also warned that if property values decline, someone with both a mortgage and a home-equity loan could end up owing more than what their home is worth. That could be a problem if a sudden need to sell arises, such as having to relocate for a job.
Larger money-management issues
A home-equity loan can be a means of making costly debt more affordable through consolidation. But borrowers who shrink their monthly payments without changing their behavior could end up deeper in debt.
“If borrowed funds are used to support ongoing spending without addressing the underlying financial challenges, borrowers may face similar debt issues in the future while having less home equity available,” O’Malley said.
Morgan said a home-equity loan can be a useful financial tool, particularly when someone has stable income and a realistic repayment plan, and is using the money for a specific purpose.
“But it can be a dangerous solution when someone is already struggling to afford their ordinary living expenses,” she said.
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