How the rate-lock effect is changing homeowner behavior

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How the rate-lock effect is changing homeowner behavior

American homeowners are pulling money out of their homes at the fastest first-quarter pace in years. But the way they’re doing it has reversed, which reveals how much wealth is sitting in the country’s houses and how carefully owners are choosing to reach it.

In the first quarter of 2026, homeowners withdrew roughly $47 billion in home equity, the highest first-quarter total since 2021, according to the Intercontinental Exchange Mortgage Monitor. What stands out is the method. For the first time in years, more than half of that money came through second liens such as home equity lines of credit and home equity loans, rather than the cash-out refinances that dominated the prior decade.

That move away from refinancing and toward second liens is the clearest signal of where the market is heading in 2026. Below, Hometap looks at why it’s happening, who’s driving it, and what could change it. It starts with a basic fact: Homeowners are sitting on more value than ever, and they are being deliberate about how they reach it.

Homeowners Are Holding Record Levels of Equity

As of mid-2026, U.S. homeowners with a mortgage collectively held close to $17 trillion in total home equity, with roughly $11 trillion of that considered “tappable” — the portion lenders generally treat as available to borrow against while leaving about a 25% ownership cushion intact. That $11 trillion ranks among the largest pools of household wealth in the country, and for most families, the home remains their single biggest financial asset.

Even so, homeowners have been measured about touching it. At the mid-2025 peak, owners were withdrawing only a small fraction of a percent of their available equity each quarter. One analysis that ranked all 50 states by how much equity homeowners hold versus how often they tap it, The Mortgage Reports’ 2026 Home Equity Gap Index, described the national picture simply: The opportunity is large, but take-up is small.

So the market enters 2026 rich in equity but cautious about using it. That caution is what makes the recent surge in second-lien borrowing worth examining — and it traces back to the mortgage rates homeowners locked in years ago.

Why Homeowners Are Tapping Equity Without Refinancing

For most of the past decade, homeowners who wanted to access equity refinanced, replacing an existing mortgage with a larger one and pocketing the difference. In 2026, more are doing the opposite: leaving the first mortgage in place and adding a second one.

The driver is what economists call the “lock-in effect.” Millions of homeowners secured first mortgages at historically low rates during the 2020–2022 borrowing boom, and today’s rates sit well above those levels — the 30-year fixed averaged 6.65% as of Aug. 20. Refinancing now would mean giving up a low-rate mortgage to reach equity, so owners are choosing tools that let them keep the rate and still get cash.

The data supports this. Roughly 3.9 million homeowners who took out mortgages in that 2020–2022 window have since added a second lien, and second-lien withdrawals in the first quarter of 2026 reached their strongest first-quarter level in nearly two decades. HELOC balances have risen for 16 straight quarters, reaching $446 billion in the first quarter of 2026 — $129 billion above their 2022 low, according to the Federal Reserve Bank of New York.

The low rates of 2020–2022 are the reason for the second-lien surge of 2026. Homeowners are declining to trade away a low mortgage rate to reach their equity.

Where the Borrowing Is Happening

Where this second-lien activity is concentrated is only partly visible, and the timing matters. The clearest recent read comes from HMDA lending data compiled in The Mortgage Reports’ 2026 Home Equity Gap Index, which ranks HELOC activity by state and metro. That data reflects full-year 2025 originations rather than 2026 quarterly figures, so it is best read as a picture of momentum heading into this year.

By that measure, Utah led all states in HELOC activity. At the metro level, Madison, Wisconsin, ranked first, followed by Janesville-Beloit, Wisconsin, and Provo-Orem-Lehi, Utah. That is a very different map from where equity is most concentrated — a reminder that holding a lot of equity and actively tapping it are two different things.

Where Equity Is Richest

Home equity is not spread evenly across the country. In the first quarter of 2026, the metros with the highest share of “equity-rich” homes — properties where the owner owes no more than half of the home’s estimated value — were concentrated in the West and Northeast, according to ATTOM:

• San Jose, California — 65.2%
• Los Angeles, California — 59.3%
• San Diego, California — 58.2%
• Portland, Maine — 57.9%
• Buffalo, New York — 56.7%

These are markets where a large share of owners have built substantial cushions of accumulated value. Separately, Cotality reported that as of late 2025, large metros including New York City, Chicago, and San Francisco carried some of the lowest shares of homeowners with negative equity — another marker of markets sitting on stable, accumulated value.

Whether owners in these high-equity metros are actually putting that value to work is harder to determine, because metro-level data on how much equity gets tapped is limited. The national pattern suggests much of it stays put: Across the country, homeowners are withdrawing only a sliver of what is available to them each quarter, per ICE’s mid-2026 data.

Where Equity Is Starting to Erode

The picture looks different across much of the Sun Belt. Nationally, the share of equity-rich homes slipped to 43.3% in the first quarter of 2026, down from 44.6% the prior quarter and the lowest reading since late 2021. The share of seriously underwater homes ticked up to 3.2%.

Over the year leading into the first quarter of 2026, the states where equity-rich shares fell fastest were Florida, Arizona, Colorado, North Carolina, and Texas, according to ATTOM. Much of that traces to softening home prices: The metros with the largest annual drops in median sale price included Cape Coral, Florida; Austin, Texas; and Ocala, Florida. Cotality similarly flagged Denver, Houston, and Las Vegas among the metros with the largest increases in negative equity heading into 2026.

The takeaway is that home equity is dynamic rather than guaranteed, and it moves at different speeds depending on location.

What Could Shift These Patterns

Because so much homeowner behavior in 2026 is tied to interest rates, the map could redraw quickly if rates move. A sustained drop in the 30-year fixed rate back toward or below 6% could revive cash-out refinancing, since the calculation behind giving up a first mortgage would change. Continued price softening in the Sun Belt could push more metros’ underwater shares higher. And with the average HELOC rate having eased in early 2026, second-lien borrowing could keep climbing if that trend holds.

For now the pattern is clear. Homeowners are holding an enormous amount of value, they are accessing it carefully, and — because of the low rates they locked in years ago — they are increasingly choosing the method that keeps that rate intact rather than defaulting to convention.

This story was produced by Hometap and reviewed and distributed by Stacker.