This Was the Average HELOC Balance in 2023 -- and Why It's a Bit Alarming

Owning a home can be an expensive prospect. You have to pay a mortgage, cover the cost of a property tax bill, and deal with issues like maintenance and repairs.

But one of the benefits of owning a home is that it can potentially serve as a cash source for you. If you have enough equity in your home, you may be able to borrow against it via a home equity loan line of credit, or HELOC.

However, taking on too much HELOC debt can backfire on you. Recent data shows that HELOC balances grew in 2023 compared to a year prior, which isn't a very encouraging sign.

Are homeowners putting their properties at risk?

When you sign a HELOC, you get access to a line of credit you can tap for a predetermined period. The more money you take out of your home via your HELOC, the more money you have to pay back to a lender.

The problem, though, is that borrowing rates have been elevated across the board in recent years following the Federal Reserve's series of interest rate hikes. And since HELOCs don't offer the benefit of a fixed interest rate, signing one means opening yourself up to ongoing payments that have the potential to climb.

Meanwhile, Experian reports that the average HELOC balance in 2023 was $42,139. That's an increase of 2.7% from a year prior. But it also means that a growing number of homeowners may be putting themselves at risk of losing their homes.

The higher a given HELOC balance climbs, the harder it can become to keep up with it. But failing to repay a HELOC could put you at risk of losing your home.

To be clear, you're not going to land in foreclosure after a single missed HELOC payment. But in time, enough missed payments could lead to that unwanted result. So it's important to be careful when signing a HELOC. You may want to avoid tapping your home equity and pursue a different means of borrowing if you have a pressing need for money.

A personal loan could be a smarter move

When you sign a personal loan, you're committing to repay a sum of money the same way you are with a HELOC. But there are a few key differences.

First, personal loans are fixed-rate loans, so you don't have to worry about your monthly payments increasing over time. Secondly, personal loans are unsecured, so they're not tied to a specific asset you own. And while there can certainly be negative consequences associated with falling behind on a personal loan, like credit score damage that prevents you from borrowing again in the near term, you're not putting your home at risk the same way you are with a HELOC.

Of course, right now, personal loan rates, like all borrowing rates, are elevated. It's a good idea to wait to sign a loan if you're able to sit tight. The Federal Reserve is expected to start cutting interest rates at some point in 2024. Once that happens, the cost of borrowing could decline to some degree. 

But regardless of when you choose to borrow, think carefully before committing to a HELOC. And consider whether a personal loan is a more suitable choice.