Preparing residential property prices over the past few years has made the home a wealth of cash sources. And with homes still selling at nearly record highs, it seems unthinkable that the decline in home value and homeowner fairness.
However, some clouds are gathering on the horizon on the home front. “Home prices are leveling, driving stock growth for US homeowners,” according to the latest Homeowner Equity Report from real estate data analyst company Cotality. The number of negative equity properties (its owners are liable for the house rather than its value) is also inching. Add to the growing fear of the recession caused by President Trump’s trade war. Recessions usually overturn prices and property values.
When the value of the home decreases, the home can be a source of tension for Hellok lenders as it acts as a collateral for your credit line. For example, when real estate prices for homes collapsed during the Great Recession, lenders suddenly closed, reducing or freezing previously approved credit lines, leaving Heloc owners in the cold.
If the real estate market crashes or just cools down, could it happen to your HELOC today? Let’s look into it.
How does the value of a home affect HELOC?
The country has overcome the inflation conditions of the past few years without experiencing a slowdown in its economy. Tariffs then appeared in 2025, causing chaos in the financial markets. As a result, the probability of the US economy falling into a recession by March 2026 increased by 36% from the 26% series low in the fourth quarter of 2024, among economists surveyed in Bankrate’s latest economic indicator survey.
Recessions often lead to lower levels of real estate activity. Fewer people will be motivated or able to buy, which will soften home prices (sellers will try to stimulate demand). Most economists agree that dramatic housing market conflicts are not possible, and expect market corrections to be the most conservative. Still, the 2025 residential real estate scene has shown signs of cooling as listings increase, longer market time, increased price cuts.
If you have a HELOC and it’s worth a downfall in your home, you need to prepare for a few different scenarios.
You can lower the limit on HELOC
If you haven’t reduced the HELOC and home value in your area, your lender may reassess the equity available based on the new market value of your home. That could lead to reduced credit limits.
For example, if your home was originally valued at $400,000 and is currently worth $360,000 (a 10% drop), and you are borrowing $200,000 on a mortgage, your stock is declining. If your lender allows you to rent up to 90% of the value of your home, your HELOC limit can be reduced from $160,000 to $124,000 to reflect the change.
Your Helock can be frozen
Your lender can enact HELOC freezes. This means limiting it to what you already owe, regardless of your total credit line.
Let’s say you open a HELOC to pay for a $100,000 major kitchen renovation. If you tap a credit line at once, there will be no change in the amount or payment of the loan. “If you already portray (the whole) Hellok, you’ll continue to pay as agreed,” says Ellensteinfeld, director of consumer lending and payments at Berkshire Hills Bancorp in Boston.
But let’s say you plan to withdraw just $50,000, pay half of your fees upfront to the contractor, and pay the other half at the completion of the job. Freezing means that even though you only tap half of the available credits, freezing means you can’t take away any more funds.
You may have to pay your helock completely
Most dramatic: your lender will close your credit line and immediately request a full repayment. Can you do that?
Yes, certainly: HELOC is a loan called. This means that lenders can request that they repay some or all of it at any time. In theory, it is likely that if the value of a home’s property plummets (as we did during the Great Recession), it will only occur if you regularly miss payments. “As long as we comply with the agreed repayment terms, a reduction in the home value alone will not cause a demand for an immediate full repayment of the amount borrowed,” says Matt Dunbar, senior vice president of Churchill Mortgage’s Southeast.
The borrower was worried about defaults – essentially, they can’t pay back what they borrowed – should talk to the lender to avoid this scenario.
Some lenders may decide to limit the amount of HELOC that can be used.
– Eren Steinfeld
Senior Vice President of Berkshire Bank
How homeowners can deal with HELOC changes
First of all: Don’t worry. Even if a recession occurs, dramatic changes in HELOC are unlikely to happen these days. The fundraising scene has changed dramatically since every era preceded the Great Recession. “Lenders incorporate a large margin of security, and often require homeowners to hold 10% to 20% of their stake (at home),” said Greg McBride, Bankrate’s chief financial analyst. Still, it could be: “If home prices have sustainable slides, as we saw in 2008, they will quickly cut or freeze the equity line of home.”
So how can a homeowner deal with it? First, make sure to read the contract or fine printout of the contract before accepting the offer. This is because you need to spell out the conditions under which lenders can freeze, reduce or call in HELOC.
Next, “To effectively manage HELOC changes, homeowners need to take a careful approach to borrowing. It’s wise to borrow only what is absolutely necessary and what you can comfortably repay without any financial burden,” says Dunbar.
You can also consider raising alternative types of funding, such as home equity loans. Unlike HELOC, a home equity loan allows you to borrow all the set amounts at once and then repay them at a fixed interest rate. Therefore, lenders cannot adjust the amount of stocks they can tap if home prices fall.
The Final Words of HELOCS and FALOR HOME VALUS
Ultimately, Steinfeld doesn’t expect repeating Heloc Chaos following the 2008 global financial crisis. “One of the problems (at the time) was a lack of communication,” she says. If the housing market changes to the extent that HELOCS is affected today, “we will educate borrowers who can hold the line down.”
The bottom line, however, shows that HELOC is marked with a string, which means that the long-term or severe weakness of the housing market spurs lenders and allows the original terms of the loan to be changed in a way that a mortgage cannot. For this reason, it is wise to create a backup plan, especially if you are in the middle of a major home renovation project.
