Should You Tap Home Equity In A Recession?

In 2018, Shannon Martin and her husband snagged a deal on a rundown Victorian Era home. Recently, the couple decided to tackle some much-needed renovations to it. Phase one: They took out a $20,000 personal loan to repair the roof, fireplace and chimney. Phase two: Pay off the personal loan by taking out a larger home equity line of credit (HELOC) at a lower rate later this year, and use the extra funds to tackle additional fixes, like their failing fence. Sounds simple enough, right?

Wrong. “I’m truly, truly terrified,” Martin says. “I’ve never had to experience this type of uncertainty before.”

Martin, an insurance expert and writer at Bankrate, is uneasy because her plan depends on several things going right. Their home has to keep increasing in value, so that they will have built enough equity to qualify for a large credit line at a good rate. Both she and her husband have to remain employed. And most importantly, the economy has to cooperate – by staying strong.

Unfortunately, of late, there have been rumblings about a recession, and the U.S slipping into one (if not already there). You don’t need additional debt during economic downturns. Martin vividly recalls the close call when she almost took out an adjustable-rate mortgage back in 2008 – right before the housing market collapsed and home values plummeted. If a recession did happen, would opening a HELOC, which also has a variable rate, be the same sort of mistake?

Martin’s dilemma echoes what many homeowners might be asking: Should you tap into your home equity in a recession? It could be a smart strategy – or a financial tripwire. No one answer exists, but here’s some data to help you decide.

Mixed economic signals: record rates but the specter of slowdown

Like a sunny sky with dark clouds on the horizon, the economy is sending mixed signals.

On the go-for-growth side: Residential real estate just keeps on appreciating in price, which boosts equity stakes. According to property data analyst ICE Mortgage Technology, the fourth quarter of 2024 was the largest volume of equity growth in any fourth quarter on record. As of the end of 2024, the average morgage-holding homeowner had $313,000 worth of equity in their house, or about $17 trillion in equity overall.

On top of that, the cost of home equity financing is getting cheaper. HELOC rates are at a two-year low; home equity loan rates are at their lowest levels this year. The value of your home hasn’t been this accessible for quite some time.

But here’s the other, negative side. While technically, we aren’t in a recession (defined as two straight quarters in a row of negative economic growth), recent data on business growth, consumer confidence and consumer debt levels indicate the U.S. economy is in the midst of a serious slowdown. Home prices are still appreciating, but the pace of that appreciation has lessened noticeably, for example. Subsequently, year-over-year Increases in home equity for mortgaged homes averaged over $21,000 in 2023, but slipped to just over $4,000 in 2024.

According to Bankrate’s latest Economic Indicator Survey, the odds of the U.S. economy entering a recession by March 2026 have risen to 36 percent, up from a series low of 26 percent in the fourth quarter of 2024. “There are risk factors at play [inflation and President Trump’s tariffs] and odds of a recession are meaningfully higher than at the beginning of the year,” says Bankrate Chief Financial Analyst Greg McBride. “If economic data begins to deteriorate, it [a recession] can happen in a hurry.”

If an actual recession does develop, there’s the reality of potentially losing your job, home values dropping or lenders tightening up on credit. Even if you can access your home’s equity, accumulating debt – especially debt that puts your property at stake – may not be so appealing during uncertain times.

And uncertainty certainly rules right now. ““Do you jump out of the burning building and hope that you land in that safety net? It literally feels like that kind of decision,” Martin says. “If something bad is going to happen, it’s going to happen. But just how bad is bad?”

How can you access your home’s value in a recession?

Home equity is essentially the part of your home you own outright: that is, the difference between the value of your home and what you still owe on your mortgage. Let’s say your home is worth $400,000, and your mortgage balance is $250,000. That means you’ve got $150,000 in equity. In a time of need, especially during an economic slowdown, that can look a lot like a lifeline.

Here are the principal ways you can turn part of your home equity into usable cash and what you need to watch out for during a recession:

Each option has its drawbacks and benefits, depending on how stable your finances are, how much money you need, how quickly you need the funds, how comfortable you are with repayment terms and your risk tolerance. Also, with all of these options, you could potentially lose your home if you don’t make payment or violate the terms of the agreement. “Calibrate your choice to what best suits your needs,” advises McBride.

Why tapping home equity might make sense in a recession

“More than half of Americans live paycheck-to-paycheck and in an environment where their cost of living has increased,” says Jonathan MacKinnon, senior vice president of product strategy and business development at Hometap, a HEI lender based in Boston. “Oftentimes, they’re feeling stressed. But it doesn’t mean that your financial objectives are just going away. You still have things that you need to accomplish.”

And home equity loans and lines of credit can be a sound way to accomplish those things. They typically have lower rates than forms of consumer debt, like credit cards or personal loans. If you have to choose between a 20 percent credit card interest rate, a 12 percent personal loan, or an 8 percent HELOC rate, the latter can certainly be more enticing. In a slowing economy in which every dollar counts, consolidating the higher-interest debts with a less-expensive home equity product can also free up some much-needed cash flow.

When emergencies hit, home equity can act as a buffer. Whether you lose your job, have an accident, or other unforeseen expense, having access to affordable funds can help you cover critical needs without dipping into your savings or retirement accounts, unloading investments, or even selling your home.

But homeowners shouldn’t wait for a crisis to access their home equity, stresses, Darren Tooley, senior loan officer at Cornerstone Financial Services, a lender based in Michigan “If homeowners wait until they have the urgent need to tap into their equity due to financial strain or loss of income, it may be too late, and they could run into issues with qualifying,” he says. “If you have concerns that any economic slowdown could impact you financially, it’s best to get ahead of the problem, and you may get much better terms than if you were to wait.”

Why tapping home equity might backfire in a recession

Tapping into your home equity comes with serious risks, especially if a recession is on the horizon. The biggest one? If you can’t keep up with payments, you could lose your home — because your home is collateral for the debt. (That’s why home equity loans are able to offer lower interest rates: having something to back the debt reduces the lender’s risk.) Sure, credit card rates are almost triple that of home equity rates, but that debt doesn’t threaten the roof over your head.

A slowing economy can also take the wind out of the housing market. “If prices drop in your area, your equity could shrink fast, or worse, you could end up owing more than the place is worth,” says Elena Novak, lead real estate researcher at PropertyChecker.com, a Boston-based property data platform. This state of “negative equity” can make it harder to refinance or sell the home and get out from under the debt. In a recession, that’s a position you don’t want to be in.

In fact, one of the ominous signs in this economy is a rise in negative equity properties, which nationally has increased 9 percent from Q4 2023 to Q4 2024, to over 1 million homes. As of April 2025, foreclosure filings — default notices, scheduled auctions or bank repossessions – are up nearly 14 percent from a year ago. Both are still a fraction of all mortgaged properties in the U.S., but the increase suggests the economic stress homeowners are already beginning to feel.

Which is better for a recession: HELOC or home equity loan?

During an economic slowdown, a home equity loan might feel safer because of its fixed interest rate – and fixed payments: You know what you’ll owe each month. However, if you lose your job, that extra bill (fixed or not) could go from manageable to overwhelming very quickly.

With a HELOC, things can get even trickier. Most HELOCs have variable rates, and, while interest rates typically fall in a recession, the fluctuations can be hard to budget for. Plus, if the economy slows down or home values drop dramatically, your lender could freeze or lower your credit line, or even demand repayment.

Should you tap your home equity in a recession?

Tapping home equity in a recession isn’t necessarily reckless. In fact, it can be one of the smarter tools in your financial toolbox, if used carefully. But it’s not free money. It’s tied to your home and that means the stakes are high. Sure, you may be sitting on a mountain of home equity, but a gut check of why you are tapping into that wealth is essential, even more so during a recession.

Do you need this money, or just want it? There’s a big difference. “Reflect on whether a HELOC supports your long-term financial plans,” says Erik Schmitt, digital channel executive at Chase Home Lending. Home equity is not an ATM for non-essential purchases like a vacation or a home theater. But for medical bills/long-term care, a vital renovation or even college tuition — it is arguably a sound source.

Second question: Can you realistically pay it back, even if the economy takes a turn? “Evaluate your income, expenses and overall budget to determine if you can comfortably make the required payments,” says Schmitt. Don’t borrow without a repayment strategy. That’s how short-term relief becomes long-term regret.

Shannon Martin admits that the HELOC isn’t an absolute necessity, as the personal loan will still cover all her immediate repairs, though at a higher interest rate. But still, the HELOC’s larger credit line tempts her.

“I would love to have my house painted – I want it to be purple. That’s not an important thing, but I know it would make me happy,” she says. “Any other time in my life, I would have been like, ‘What’s 7,000 more dollars? Let’s just do it and we’ll figure it out. I can’t do that now, because every penny counts in so many different ways.”