Homeowners have various financing options through their home equity. But in today's economic climate, it's become harder to access. After its third meeting in 2025, the Federal Reserve held interest rates steady again, bringing no reprieve to borrowers in its quest to fight inflation. Due to ongoing uncertainty and fluctuations in the market, in certain areas. So while homeowners have benefited from increasing home values, not everyone can take advantage of home equity borrowing. 

According to the March 2025 Intercontinental Exchange (ICE) Mortgage Monitor Report, homeowners are sitting on an average of $313,000 in home equity. But due to stricter credit requirements, rising borrowing costs due to elevated rates, and a shifting job market, equity is essentially inaccessible for some and "trapped." 

If you're a homeowner, you might feel your home equity is trapped and wonder what next steps you can take. We spoke with home lending experts to uncover what's driving this and what you can do to effectively use your home equity. 

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Is your home equity trapped right now? 

Home equity has long been a powerful borrowing tool for homeowners. Whether it's used for debt consolidation or home renovations, it's a way to get the most out of your home while keeping borrowing costs relatively low. But "trapped" equity, which means equity that is built in but not readily or easily accessible, can be holding people back for several reasons, including: 

Elevated interest rates 

Some homeowners were fortunate enough to secure historically low mortgage rates several years ago. While having a low mortgage rate is a benefit, it can also lead to home equity being "trapped." 

First, many homeowners don't want to sell their home now because it would meant they'd have to give up their low mortgage rate. If they sell now, they can cash in on that equity. But if they want to buy another home, they have to contend with current mortgage rates, which are significantly higher than several years ago. 

According to a , 55% of respondents who have been thinking of selling their homes for more than one year feel locked in due to mortgage rates. Currently, 82% of outstanding mortgages have a sub-6% rate, according to . Compare that to current , which shows that mortgage rates on a 30-year fixed-rate mortgage are currently 6.76%.

"With fewer homes for sale, selling to access equity often means buying another home at today's high prices and rates. That's a tough pill to swallow, so many stay put, keeping equity locked," says Steven Glick, director of mortgage sales at HomeAbroad, a real estate investment fintech company.

Another common way for homeowners to tap their equity is through a cash-out refinance. But with elevated interest rates, for many Americans, it simply doesn't make sense. 

"A lot of people either bought or refinanced during 2020, 2021, when rates were pretty low. When you want to get equity out of your home, typically you really do that in one of three ways," says Rose Krieger, senior home loan officer at Churchill Mortgage. "The first one would be a cash-out refinance, which would affect your overall interest rate. You would be subject to the current market rates. For a lot of people, that's double, if not a little bit more than what their current interest rate is, which would significantly increase their monthly payment."

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Stricter lending requirements 

Home equity borrowing options are an attractive alternative to other loan products, especially high-interest credit cards. Even so, borrowers must meet the eligibility requirements set by home lenders and financial institutions. That means looking at your credit history, debt-to-income ratio and employment situation. 

Some employment sectors are seeing tumultuous upheavals that can affect home equity borrowing. 

"Layoffs in sectors like tech and government make lenders cautious. They worry you might not repay if your income is unstable. Plus, fears of a recession or tariff-driven market swings add risk, so banks tighten the purse strings," says Glick.

Point estimates that every year, 1 in 11 homeowners who have a mortgage experience a job loss, decrease in pay, or transition to self-employment. These events may affect credit, job stability, and income verification. Because of that, equity may become "trapped" because borrowers no longer meet the basic underwriting criteria set by home lenders. 

What to do if your home equity is trapped 

If you feel like your home equity is trapped, it can be frustrating. You may feel you can't take advantage of the built-in wealth your home provides. Here are some practical tips to help you tap your home equity:

Look into alternative home equity borrowing options 

Given the high-rate climate we're in, a cash-out refinance may be off the table. But there are two other home equity borrowing options that may be a better option during these times. 

"So the best option for homeowners who want to tap into equity without refinancing, I would say it's HELOCs, which is the most flexible way," says Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors. 

Home equity loans are another option. Unlike home equity line of credit interest rates, which are typically variable, home equity loan interest rates are fixed. Evangelou says home equity loans are "great for one-time, large expenses. Budgeting is easier because you know your payment. You know your payment and the interest costs from the start."

With home equity loan and HELOC borrowing, you can maintain your current mortgage rate while tapping your home equity. 

"I feel like the HELOCs are more popular right now because they do not affect your first mortgage rate. So if your rate is two and a half right now and you get a HELOC, you're still going to have that two and a half rate on your first mortgage," says Krieger. 

Improve your credit 

If you're unable to access your home equity due to your credit, you can take steps to improve your rating. Both payment history and credit utilization have a major impact on your credit score. Krieger recommends working on your credit, but also discussing your options with a lender. 

"Just paying off all your debt isn't the answer. We usually have different systems, computer software that we can use to help give you an idea of what to pay off versus what not to pay off to get your credit where it needs to be for a HELOC. I think that would be one of the easiest ways," says Krieger.

Stabilize employment history 

If you've been laid off or transitioned to self-employment, it may be tough to qualify for home equity borrowing products. Home lenders like stability and want the assurance that you have the means to repay what you borrow. Focus on stabilizing employment history and income so you have the verification you need. 

"For self-employment, typically you're required to be on that job for two years. But with HELOCs, the rules can be a little different at times," says Krieger.

The bottom line 

As a homeowner, you've likely seen remarkable growth in your home equity over the past few years. But if your home equity is trapped, you may not be able to take advantage of it the way you want. Taking steps to improve your credit, stabilize employment, and looking into alternatives to a cash-out refinance can help. 

Look at various home lenders' terms and eligibility requirements. Compare home equity line of credit and home equity loan rates. Despite rates being higher than they were several years ago, relative to other borrowing options, they still typically come out on top in terms of cost savings.