Why a Home Equity Loan May Not Be Worth the Risk

As with all financial products, home equity loans and HELOCs come with their own set of benefits and drawbacks that you should explore before you make a multi-year commitment.

Lower rates, larger loans can come at a cost

Home equity loans and HELOCs offer lower interest rates than unsecured personal loans because they’re secured by your home—but that means risking your property if you default. For many homeowners, the equity in their property is one of their largest financial assets, so it’s important to weigh the pros and cons of equity-based borrowing.

Plus, your borrowing power will be limited to the equity in your home. You may be able to access more money using a HELOC than you could with other financing options, but only if you have lots of equity.

HELOCs also have variable APRs, meaning the rate can change without warning, making it harder to budget overall costs of borrowing.

Hidden expenses

In most cases, you’ll owe origination fees, appraisal fees, and other closing costs to take out a home equity loan or HELOC—similar to a mortgage.

While closing costs vary by lender, fees typically range from 2% to 5% of your loan amount. On a loan worth $100,000 or more, this could result in a significant amount of money.

In the first quarter of 2025, Americans withdrew nearly $25 billion from HELOCs—the highest level since 2008. This surge raises concerns about growing debt tied to housing costs.

As recession fears rise, nearly one in three homeowners are eying home equity loans, according to a recent survey by MeridanLink. Those interested in tapping their home equity plan to use it to fund home improvements (45%), debt consolidation (16%), and investments in other properties (16%).

At the same time, 54% of homeowners are hesitant to tap their equity, citing worries about high interest rates and the risk of jeopardizing homeownership.

HELOC APRs are tied to the prime rate, and recent spikes have caused HELOC averages to exceed 9%. In an elevated-rate environment, HELOCs are less affordable than they were just a few years ago.

Here’s a quick glance at how a home equity loan compares to a BHG personal loan:

Even though the lower initial interest rate might seem like a no-brainer, weigh the potential consequences of losing your home, longer approval times, and the possibility of increased rates in the future.

Risking your most valuable asset

Even high earners face cash flow restraints, which means that even a small increase in expenses could strain your budget. If your interest rate suddenly spikes or you are faced with a significant, unexpected expense, you could default on your payments. This could eventually lead to you losing your home.

Rates can climb—and so can your payment

HELOC rates are variable; your rate will change as the economy fluctuates, making long-term budgeting nearly impossible.

With a HELOC, you have the option to only pay interest during the draw period, which keeps your monthly payments low initially. But once the repayment period begins, you must pay both the loan amount (principal) and interest. This can cause a big jump in your monthly payments, which may create financial strain.

Liquidity delays and lost opportunities

Getting a HELOC can take some time—at least a few weeks to review your application, conduct a home appraisal, and disperse the funds. If you plan to use your loan for more immediate needs, this prolonged process, plus the fees involved, may limit your financial agility.

A BHG personal loan is a smart way to cover both planned and unexpected expenses. Designed for professionals with complex finances, our loans are unsecured—so there’s no collateral required, and your home stays protected.

The loan also lets you lock in a fixed interest rate with predictable monthly payments, giving you peace of mind without any surprises or variable rate swings. With approval decisions in as little as 24 hours¹ and fast funding, you can access funds quickly when you need them most.

BHG personal loans are flexible, too. Borrow up to $250,000² with terms of up to 10 years.^2,3

For high-income, asset-rich professionals, BHG’s personal loans offer a better balance of cost, speed, and safety.

So, what are you waiting for? Make liquidity work for you—not against you. Ready to explore the possibilities? Use our quick and easy payment estimator to get your personalized loan offer in just seconds. Our U.S.-based concierge team is here to guide you.