5 Ways a Home Equity Line of Credit (HELOC) Can Hurt You

A home equity line of credit (HELOC) can offer flexibility and relatively low borrowing costs. You only pay interest on the amount you use, making it more attractive than lump-sum loans for many homeowners. But while the benefits are well-known, the risks often aren’t. If you’re not careful, a HELOC can lead to growing debt, unpredictable payments, and long-term financial strain.

Rising Interest Rates

Most HELOCs come with variable interest rates, meaning your rate (and payment) can change anytime. These rates are typically tied to a benchmark index like the federal funds rate, plus a margin set by the lender. When interest rates rise, your monthly payments do, too, and sometimes significantly.

This unpredictability can be financially risky. If your budget is tight, even a small rate increase could make your payments unaffordable. And if you fall behind, you risk hurting your credit score and increasing your overall debt through compounding interest.

Variable rates also affect your total borrowing cost. A project that once seemed affordable could end up costing much more over time, especially if rates rise before you’ve repaid the balance.

How a Home Equity Loan Can Help

If rate stability is a concern, consider a home equity loan instead. Unlike a HELOC, a home equity loan typically offers a fixed interest rate. “In a rising-interest-rate environment, it may be better to have a home equity loan to lock in a fixed rate,” said Marguerita Cheng, CFP, CEO of Blue Ocean Global Wealth.

Some lenders also offer fixed-rate conversion options within HELOCs, allowing you to lock in a portion of your balance at a steady rate. These features offer more predictable payments, though they usually come with slightly higher interest rates compared to variable options.

Fluctuating Payments

A HELOC’s variable interest rate means your monthly payments can vary significantly over time, just like an adjustable-rate mortgage. This can create budgeting challenges, especially if you’re trying to manage a fixed income or plan for long-term expenses.

Payment changes depend on shifts in interest rates, which are unpredictable. You may start with manageable payments, only to see them double or triple later in the loan term. For borrowers who prefer financial stability, this volatility can create unnecessary stress.

“Variable-rate loans are a terrific option if you are looking for low rates over the short term and could easily afford to pay down the loan quickly,” said Jonathan Swanburg, investment advisor representative at Tri-Star Advisors. “However, far too often, individuals take the savings from their floating rate loans and use them to increase their lifestyle. When rates rise, they can no longer afford the interest expense and find themselves in financial trouble.”

Interest-Only Payments

Some HELOCs allow you to make interest-only payments during the initial draw period, which often lasts five to 10 years. This feature lowers your monthly obligation in the short term, making the loan seem more affordable.

But once that period ends, the repayment phase begins. Monthly payments can jump sharply, especially if you haven’t paid down the principal. In some cases, a large balloon payment may be due at the end of the term.

If you haven’t budgeted for this shift or your income has declined, you may struggle to keep up. And while you’ve delayed higher payments, interest continues to accumulate. The longer you wait to pay down the principal, the more total interest you’ll pay.

Expensive Debt Consolidation

HELOCs are often marketed as a way to consolidate high-interest debts like credit cards. The appeal is understandable: Roll multiple payments into one and potentially pay a lower interest rate.

But this strategy can backfire. Extending repayment over 10, 15, or even 30 years—even at a lower rate—can increase your total interest costs. A quick fix could turn into a decades-long financial drag.

Before consolidating, it’s worth using a debt consolidation calculator to compare total repayment costs. A lower rate doesn’t always mean you’ll save, especially if your repayment term is longer or your HELOC rate increases down the line.

There’s also the risk of repeating past behavior. Without changes in spending habits, it’s easy to rack up new credit card balances after using the HELOC to pay off the old ones. In that case, you’ve turned unsecured debt into secured debt—now backed by your home—and added new unsecured debt on top of it.

And because HELOC rates can rise, any advantage gained from a lower interest rate today could disappear tomorrow.

Excessive Spending

Because HELOCs are relatively easy to access and often come with minimal upfront costs, they can create a false sense of financial security. Spending from your credit line can feel like swiping a debit card, especially when lenders issue checks or cards tied to your HELOC account.

This ease of access can tempt borrowers to finance lifestyle upgrades, vacations, or daily expenses they can’t otherwise afford. While the interest may be tax-deductible in some cases, the bigger concern is behavioral: Using a HELOC as a source of emergency or discretionary funds can encourage living beyond your means.

Over time, that behavior adds up. You may deplete your home equity, build unsustainable debt, and have little room to maneuver when faced with job loss, rising rates, or unexpected expenses.

The Bottom Line

A HELOC can be a useful financial tool when used strategically—especially for major home improvements that boost your property’s value. “HELOCs can be very valuable if used for housing expenses only,” said Elyse Foster, founder of Harbor Wealth Management. “Remodeling or home improvements are best.”

But the very features that make HELOCs appealing—flexibility, easy access, and low initial payments—can also lead to financial trouble. Make sure you understand how your rate is structured, what your payments could look like down the road, and whether you have the financial discipline to stay within your means. A home equity loan or fixed-rate conversion may offer more peace of mind if stability is your goal.