HELOC Volume Just Posted Its Best Quarter in Two Years and Homeowners Are Tapping Equity Again

TransUnion's Q1 2026 mortgage industry report, released April 21, shows home equity line of credit originations climbed to $43 billion in the first quarter, the highest figure since Q4 2023 and a 28 percent increase over Q1 2025. The increase comes alongside total tappable home equity at a record $11.7 trillion across owner occupied homes nationwide, per ICE Mortgage Technology data. The combination of high equity, prime rates that have stabilized between 7.25 and 7.75 percent, and a hesitation around selling has pushed homeowners toward equity tap products in volumes not seen since the post pandemic refinance boom ended in late 2022.

The average HELOC line size at origination rose to $148,000 in Q1, up from $128,000 in Q1 2025. Average draw at origination held at 51 percent of available line, meaning a typical borrower is pulling out roughly $75,000 in initial cash. Approval rates moved up to 67 percent in the first quarter from 58 percent a year earlier, reflecting both lender appetite and tighter borrower self selection given prime rate sensitivity. Bank of America, US Bank, Citizens, PNC, Truist, and Figure are the six largest HELOC lenders by 2025 originations, with Figure's online platform now writing roughly 14 percent of new lines nationwide.

Borrower use of funds has shifted compared to the 2021 to 2023 cycle. Home improvement projects still account for the largest single category at 38 percent of new draws, but debt consolidation rose to 27 percent in the first quarter from 18 percent two years ago. Average credit card debt per cardholder hit $7,310 in March, with a national APR average of 24.6 percent according to Federal Reserve consumer credit data, which makes a HELOC at prime plus 0.5 to 1.5 percent attractive math even with a higher monthly payment. Investment property purchases came in third at 14 percent, helped by the spring buying season.

The HELOC and home equity loan distinction matters here because the products work differently. A HELOC is a revolving line tied to prime rate that can be drawn on for ten years and repaid for twenty, with most lenders charging an interest only minimum during the draw period. A home equity loan is a fixed rate, fixed term second mortgage typically priced 50 to 150 basis points above the prime HELOC rate, with terms running 10, 15, or 20 years. Roughly 78 percent of Q1 originations were HELOCs, with the remainder split between fixed home equity loans and cash out refinances.

The cash out refinance side has stayed slow because most existing first mortgage holders are sitting on rates between 2.75 and 4.5 percent locked in during the 2020 to 2022 window. Refinancing into a new first mortgage at 6.23 percent to extract equity is rarely the math that wins. The HELOC sits behind the existing first mortgage and lets the borrower keep the low first mortgage rate untouched. This is why HELOC volume has decoupled from refinance volume in a way it never did before 2022.

The credit risk picture is mixed. Default rates on HELOCs and home equity loans rose to 1.4 percent in Q1, up from 1.1 percent a year earlier and the highest reading since 2017. Most of the rise sits in lines originated between 2018 and 2021 to borrowers in the 620 to 680 FICO band, who are seeing the prime rate driven monthly payments climb above their original underwriting assumption. Lenders have responded by tightening minimum FICO requirements at origination, with most major lenders now requiring 700 plus for the best pricing and 680 minimum for any approval.

Tax treatment has not changed. The Tax Cuts and Jobs Act capped mortgage interest deduction at $750,000 of qualified principal and disallowed deduction for HELOC interest unless the funds are used for substantial home improvement. The provision is set to sunset December 31, 2026 unless Congress acts, with a return to the pre 2018 limit of $1 million and broader interest deductibility on home equity debt. The TCJA extension debate is one of the four legacy items in the broader 2026 tax negotiations on Capitol Hill, alongside the SALT cap, the standard deduction, and the corporate rate.

For homeowners, the practical math comes down to three checks. First, what is the rate spread between current credit card debt and the HELOC offered, and how long would it take to pay off the HELOC at the higher monthly payment that retires principal. Second, what is the loan to value ratio after the new line, and is it staying below 85 percent. Third, what is the prime rate sensitivity over the next 24 months given the current Fed cut path, with most economists projecting prime to hold between 7.25 and 7.75 percent through year end before potentially trimming 25 to 50 basis points in 2027.