Homeowners Sit on Equity While the Rules Keep Shifting
Homeowners today are sitting on a remarkable amount of untapped wealth. One recent report notes that 97% of tappable home equity went unused last year, even as interest in home equity lines and loans climbed to their highest level since 2023.
At the same time, the cost of mortgage credit has risen sharply, new credit scoring models are coming into the market, and innovative second-lien products are emerging. Together, these trends are reshaping how borrowers access equity and qualify for mortgage financing.
HELOC and Home Equity Loan Trends: Low Rates, High Hesitation
Recent data on home equity lending shows a mixed picture. The prime rate has held steady, and second-mortgage pricing is hovering near three-year lows. Current HELOC and home equity loan rates remain relatively attractive compared with many other forms of consumer debt.
Consumer interest is responding. Demand for HELOCs and home equity loans has climbed to its strongest level in several years. Yet despite this, nearly all of the tappable equity in U.S. homes remained untouched in the last year.
This combination suggests many owners are curious about using home equity but still cautious about taking on new obligations in a volatile rate and economic environment. For lenders and advisors, it is an important moment to clearly explain:
- The long-term costs of different equity options versus short-term liquidity needs.
- How a second mortgage interacts with an existing first-lien rate, especially when that first mortgage is lower than current market levels.
- Why leaving equity idle may or may not make sense, depending on a borrower’s broader financial picture.
New Second-Lien Reverse Line of Credit for Older Homeowners
Innovation in home equity access is not limited to traditional HELOCs. In California, Finance of America Reverse has introduced the HomeSafe Second Line of Credit, a second-lien reverse mortgage line of credit positioned as an alternative to HELOCs for older homeowners.
The product is targeted to homeowners aged 55 and over and is designed to provide flexible access to equity without requiring monthly mortgage payments. Key structural features, based on its launch details, include:
- A mandatory initial draw of 25% of the available line.
- The ability to tap the remaining funds over a 10-year period.
- Growth of 1.5% on the unused line of credit, increasing available funds over time.
- No required monthly mortgage payments, in keeping with the reverse-mortgage structure.
California is the first market for this second-lien reverse line, with plans to expand into more states in the future. For suitable borrowers, particularly equity-rich, cash-flow-sensitive retirees, products like this expand the toolkit beyond traditional HELOCs and cash-out refinances.
Piggyback HELOCs and Cash-Out Refinance Strategies
On the other end of the spectrum, lenders are also using piggyback HELOCs to help borrowers who need cash-out but want to manage pricing add-ons or appraisal challenges. One example comes from Symmetry’s piggyback HELOC program, which can close at the same time as a first-mortgage refinance or within 120 days afterward.
Program highlights include:
- Rates starting as low as Prime plus a 0% margin.
- Combined loan-to-value allowances up to 89.99% for primary residences.
- Eligibility aimed at borrowers with a 760+ mid FICO score.
- A minimum draw of $200,000 and a maximum line of $500,000.
- A five-year draw period.
In scenarios where appraisals come in lower than expected or where borrowers need more cash-out than the first mortgage comfortably supports, piggyback HELOC structures are being positioned as a way to bridge the gap.
Rising First-Mortgage Rates and Growing Payment Stress
While second-mortgage pricing has been relatively favorable, first-mortgage rates have moved in the opposite direction. Mortgage rates have climbed above 6% for five consecutive weeks, pushed higher by inflation concerns tied in part to rising oil prices and resulting increases in 10-year Treasury yields.
Higher rates are coinciding with increasing strain on household budgets. Recent reporting highlights that Americans are falling behind on mortgage and student loan payments, with delinquency levels remaining elevated. VA borrowers have been especially hard hit, with foreclosures on VA loans reaching their highest level in a decade after the discontinuation of an earlier VA home loan assistance program.
Although the VA has a new solution in the works, it is still months away from implementation and may not match the protections available to many non-VA homeowners. Together, these developments underscore how costly missteps can be when rates rise and support programs change.
Mortgage Credit Costs and Scoring: A Rapidly Changing Landscape
Beyond interest rates, the cost of obtaining mortgage credit itself has surged. Survey data from community lenders compiled by the Community Home Lenders of America indicates that certain mortgage credit expenses have increased tenfold over the past four years, triggering industry-wide debate about who bears responsibility for the jump.
Borrowers are also feeling the impact directly. Commentators have noted that the price of FICO mortgage credit reports has soared, adding to upfront costs. This trend is particularly concerning for first-time buyers, where even modest additional fees can become meaningful barriers to homeownership.
At the same time, credit scoring methods are evolving. Lenders and investors are watching the roll-out of FICO Score 10T, a “trended” score that looks at longer-term credit behavior rather than a simple point-in-time snapshot. Some lenders, such as CrossCountry, have already embraced this model, and acceptance is reportedly growing in both the primary and secondary markets.
Other proposed changes are more controversial. A federal pilot to loosen mortgage credit standards through alternative scoring has prompted warnings from some local voices, such as concerns in Tennessee that the experiment could destabilize the housing market and disproportionately hurt Latino buyers if it leads to riskier lending and higher default rates down the road.
Layered on top of this, a recent executive order titled Promoting Access to Mortgage Credit directs regulators to consider wide-ranging revisions to origination, servicing, and reporting rules. For lenders, this signals that the regulatory environment around mortgage credit could shift meaningfully in the coming years.
Credit Tiers, Lender Choices, and Borrower Takeaways
For individual borrowers, all of this complexity ultimately shows up in pricing and product access. Guidance for mortgage shoppers emphasizes that moving from one credit tier to another can have a significant impact on the interest rate offered. That reality is especially important for borrowers with weaker credit profiles, who are often weighing specialized lender options with varying eligibility requirements.
Against a backdrop of higher first-mortgage rates, rising credit report costs, and evolving scoring models, a few themes stand out:
- Home equity is abundant but underused, even as HELOC and home equity loan demand accelerates.
- New products, including reverse second-line credit options for older homeowners and piggyback HELOCs, are expanding ways to access equity.
- Mortgage credit is getting more expensive and more complex, with sharp increases in report costs and new scoring models like FICO 10T entering the market.
- Regulatory and policy shifts—from VA program changes to federal executive orders—are reshaping risk, access, and borrower protections.
For lenders and housing professionals, staying current on these developments is critical to guiding borrowers toward equity and credit solutions that fit their circumstances, rather than simply chasing the latest trend.
