Quick answer
Borrowing against your home puts the home at risk: miss payments and the lender can foreclose, even if your first mortgage is current. HELOCs add rate risk — a $75,000 balance at 8% costs $500 a month interest-only, and $688 if prime rises 3 points — and the lender can freeze the line if your home’s value falls significantly. Falling prices can leave you owing more than the home is worth, and high-cost or fraudulent offers target homeowners with equity.
Key facts
50%
Value drop that can trigger a HELOC freeze
CFPB, Regulation Z official interpretation 1026.40(f)(3)(vi)-6 · Oct 28, 2026
120days
Delinquency before foreclosure can start (closed-end loans)
12 CFR 1024.41(f)(1) (Regulation X) · Oct 28, 2026
8.5%
High-cost trigger: APR over benchmark, second liens (percentage points)
12 CFR 1026.32(a)(1)(i) · Oct 28, 2026
Your home is the collateral
A HELOC or home equity loan is secured by a lien on your home. If you stop paying, the lender can foreclose — a second-lien lender as well as your first-mortgage lender — and HELOC disclosures must warn you that you could lose your home. Turning card or car debt into home equity debt can lower the rate, but it converts a debt you could default on with damage to your credit into one you could lose your house over.
For closed-end loans on your principal residence, including home equity loans, federal servicing rules generally bar the first foreclosure notice or filing until you are more than 120 days behind, which leaves time to apply for help. That rule doesn’t cover HELOCs. In Texas, a home equity lender can foreclose only with a court order and can’t pursue you personally for any shortfall — see the Texas guide.
If a payment is in doubt, call the lender before you miss it, and talk to a HUD-approved housing counselor; HUD’s referral line is 800-569-4287.
Rising rates on a variable line
Most HELOC rates follow the prime rate, now 7%, plus a fixed margin. When prime rises, so does your payment, during both the draw and repayment periods.
| Rate | Draw period, interest only | Repayment over 20 years |
|---|---|---|
| Today: 8% | $500 | $627 |
| +1 point: 9% | $563 | $675 |
| +2 points: 10% | $625 | $724 |
| +3 points: 11% | $688 | $774 |
Every variable-rate loan secured by a home must state a maximum rate in the contract, so your worst case is written down — find it before you sign. Pair a rate rise with the end of the draw period and the jump compounds; HELOC draw and repayment periods shows how to plan for it.
Line freezes and cuts
Federal rules (12 CFR 1026.40) let a lender stop further draws or reduce your limit while certain conditions last, mainly a significant decline in the home’s value below its appraised value, a material change in your finances that makes repayment doubtful, or a default under the agreement. The lender must notify you in writing, with reasons, within 3 business days.
When does a value drop count as significant?
A $400,000 home with a $200,000 mortgage has $200,000 of equity. A HELOC at an 80% combined limit gives a $120,000 line, leaving a gap of $80,000 between the line and your equity. The official interpretation treats a decline as significant when it shrinks that gap by 50% — here, a fall of $40,000, or 10% of the home’s value.
A freeze doesn’t change what you already owe, but it removes credit you may have planned to use — mid-renovation, for example. The CFPB suggests asking why, checking your credit reports for errors, requesting a new appraisal if you think the value is wrong, and shopping for another line.
Falling home values
Prices don’t only rise. If you borrow the full line and values fall, your equity can disappear, making it hard to sell, refinance or move without bringing cash to closing.
| Change in value | Home value | Equity left | Combined loan-to-value |
|---|---|---|---|
| No change | $400,000 | $80,000 | 80% |
| −10% | $360,000 | $40,000 | 88.9% |
| −20% | $320,000 | $0 | 100% |
| −30% | $280,000 | −$40,000 | 114.3% |
Leaving a cushion — borrowing less than the maximum — is the simplest protection. US prices rose 2.4% over the past year in FHFA’s index, but local markets can move the other way.
Scams and predatory lending
Homeowners with equity are a target. The FTC advises reading every closing paper and not signing if the financing isn’t what you expected, refusing to wire money in response to an unexpected email, and avoiding payment methods that are hard to reverse. Other warning signs:
- Loan flipping — repeated refinancing that adds fees each time without a real benefit to you.
- Packing — optional products such as credit insurance added to the loan without a clear choice.
- Contractor-arranged loans — a contractor who steers you to a lender and is paid from your loan before the work is done.
- Pressure to waive your right to cancel — you have 3 business days to cancel a loan on your main home; waiving it is meant only for genuine emergencies.
Federal high-cost mortgage rules (HOEPA) add protections when a loan secured by your main home has an APR more than 8.5 percentage points above the average prime offer rate for a second lien (6.5 points for a first lien), or points and fees above 5% of the loan. Those loans require counseling from a HUD-approved counselor before closing, the lender can’t finance the points and fees, and it can’t encourage you to default on an existing loan. A quote anywhere near those levels is a reason to shop elsewhere.
Borrowing for everyday spending
Home equity rates are often lower than card or personal-loan rates, which makes it tempting to fund cars, vacations or living costs. The risk is time: a short-lived purchase paid over decades, secured by your house.
$30,000 spent on a car or trip, at 8%
| How it’s repaid | Interest paid |
|---|---|
| HELOC: interest only for 10 years, then 20 years of repayment | $54,224 |
| Paid off in five years at the same rate | $6,498 |
Interest on equity used for anything other than buying, building or substantially improving the home also isn’t tax-deductible — see home equity interest and taxes.
Frequently asked questions
Can you lose your house with a HELOC?
Yes. A HELOC is secured by your home, so if you stop paying, the lender can foreclose, even if your first mortgage is current. Some plans also end with a balloon payment that, if unpaid, puts the home at risk.
Can a bank freeze my HELOC?
Yes, under conditions federal rules allow — mainly a significant fall in the home’s value, a material change in your finances that makes repayment doubtful, or a default. The lender must tell you in writing, with reasons, within 3 business days and restore the line when the condition ends.
How much can a HELOC payment go up?
As much as the rate rises, up to the maximum rate in your contract. On a $75,000 balance, each 1-point rise in prime adds about $63 a month to the interest-only payment.
What happens to a HELOC if home values fall?
You still owe the full balance. If the fall is significant, the lender can freeze or reduce the unused part of the line, and you may owe more than the home is worth, which makes selling or refinancing harder.
How do I spot a home equity scam?
Be wary of pressure to sign quickly, terms that change at closing, repeated refinancing offers, contractors who arrange your loan, and emailed wiring instructions. Confirm everything independently and never waive your right to cancel without a real emergency.
Is it a bad idea to use home equity to pay off credit cards?
It can lower your rate, but it puts your home on the line for debt that wasn’t secured before, and the interest isn’t tax-deductible. It works only if you stop running up the cards and repay the equity debt on a set schedule.
Sources
- Federal Reserve H.15 — Bank prime loan rate (Oct 28, 2026)
- CFPB — Example HELOC draw period (CFPB); HELOC repayment period, often up to (CFPB) (Aug 28, 2026)
- CFPB, Regulation Z official interpretation 1026.40(f)(3)(vi)-6 — HELOC freeze: a value drop that cuts the original gap between credit limit and available equity by this share counts as significant (Oct 28, 2026)
- 12 CFR 1026.32(a)(1)(i) — High-cost mortgage trigger: APR more than this many percentage points above the average prime offer rate (subordinate lien); High-cost mortgage trigger: APR more than this many percentage points above the average prime offer rate (first lien); High-cost mortgage trigger: points and fees above this share of the total loan amount (Oct 28, 2026)
- 12 CFR 1024.41(f)(1) (Regulation X) — Servicer cannot make the first foreclosure notice or filing until a closed-end mortgage is more than this delinquent (Oct 28, 2026)
- HUD — HUD housing counseling referral line (Oct 28, 2026)
- 12 CFR 1026.9(c)(1)(iii) — Lender must send written notice of a HELOC freeze or credit-limit cut within (Oct 28, 2026)
- FHFA House Price Index — US house prices, 12-month change (FHFA HPI) (August 2026)
- CFPB — Right to cancel a refinance or home equity loan on your principal home (Aug 8, 2024)
- FTC: Home equity loans and home equity lines of credit
- CFPB: What you should know about home equity lines of credit (brochure)
- 12 CFR 1026.34: Prohibited acts for high-cost mortgages
- 12 CFR 1026.40: Requirements for home equity plans
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.