Why Big Banks Stopped HELOCs: Risks, Rates & Alternatives

Many homeowners are surprised to learn that major banks have paused HELOC originations. This article explores why big banks stopped offering new HELOCs, what’s behind the shift, and where you can find alternative options.

Why Did Big Banks Stop Financing HELOCs?

1. Rising Concentration Risk

Big banks hold HELOCs on their balance sheets, unlike mortgages that can be securitized. A surge in HELOC volume increases exposure to housing market downturns, prompting banks to halt new approvals.

2. Collateral Risk Amid Cooling Real Estate

With home prices unstable, lenders are wary. Declines in equity reduce collateral security, making HELOC portfolios riskier if borrowers default.

3. Higher Risk Compared to First Mortgages

HELOCs are second-lien loans; banks get paid only after the first mortgage in foreclosure. This subordinate position raises credit risk and influences lending decisions.

4. Strategic Focus Shift

Post-2008 and post-pandemic, banks have recalibrated priorities. Wells Fargo, JPMorgan, Citi, and others cited market uncertainty when suspending HELOCs. Smaller lenders are stepping in.

5. Tightened Underwriting & Regulatory Pressure

Extra scrutiny from regulators, combined with stricter income, credit, and debt-to-income requirements, has made qualifying harder. Many homeowners are now denied.

What’s the Current HELOC Landscape?

HELOC Originations: Still down compared to pre-2021 levels, banks approved significantly fewer accounts in 2024–2025 compared to the early 2000s boom.
Balances Rising: While originations slow, existing HELOC balances climbed ($396 billion by Q4 2024), driving a heavier concentration on banks’ books.
Rates Remain Elevated: Average HELOC rates hover at ~8.2 %, higher than historical lows, discouraging casual borrowing.

What This Means for Homeowners

Big Banks Aren’t the Only Option
Smaller banks, credit unions, and mortgage brokers still offer HELOCs, often with competitive terms.
Qualification is More Stringent
Prepare longer credit histories, steady income, low debt-to-income ratios, and substantial equity.
Consider Alternatives

Home equity loans – fixed rate, less exposure to second-lien risk
Cash-out refinance – better for securing long-term, lower rates
Personal loans – for smaller, non-collateral needs

Prepare for Fluctuating Rates
With variable HELOC rates tied to short-term indexes, borrowers must understand rate caps and repayment triggers.

Checklist: Steps If You Need Home Equity Credit

Step	Action
1	Check big bank policies; many still don’t accept new HELOCs
2	Shop among credit unions, local banks, and fintechs
3	Gather strong documentation (equity proof, DTI, ample income)
4	Compare alternatives, home equity loans, cash-out refis, and unsecured loans
5	Understand loan terms: repayment period, caps, fees

FAQ

Q: Why aren’t big banks accepting new HELOCs?
Because of concentration risk, housing market volatility, second-lien risk, and strategic de-prioritization.

Q: Can I still get a HELOC?
Yes, via smaller lenders, credit unions, and fintechs. Be ready with strong credit, income, and equity documents.

Q: Are HELOCs still worth it?
It depends; HELOC rates (~8%) may be lower than personal loans or credit cards, but variable terms and risk factors should be carefully considered.

Q: What are alternatives to HELOCs?
Home equity loans (fixed-rate), cash-out refinances, or personal loans, choose based on your needs, rate sensitivity, and timeline.

Bottom Line

Major banks have largely pulled back from HELOCs due to internal risks and market dynamics. But homeowners still have options; smaller institutions, credit unions, and alternative financing routes may offer HELOCs or better-suited solutions. Go in informed, shop around, strengthen your financial profile, and select the option that aligns with your goals and financial health.

Why Big Banks Stopped Offering HELOCs (And What It Means for You) was last modified: July 3rd, 2025 by Ramona Sinha

Written by Ramona Sinha. May 15, 2022

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.