Government Shutdown Puts Paychecks at Risk—Are HELOCs the Lifeline or a Trap?

With the federal government shut down until Congress can reach a funding deal, thousands of workers—ranging from ranging from National Parks rangers to air traffic controllers to Department of Education personnel—are bracing for furloughs, missed paychecks, and even mass layoffs.

President Donald Trump has already warned of “vast numbers” of job cuts, adding fresh anxiety to households that depend on federal jobs.

“Roughly half of American adults have three months emergency savings. This also means that roughly half of adults may not have this financial backstop,” says Danielle Hale, chief economist at Realtor.com®. 

“Government workers facing missed paychecks will likely look to rely on savings first to fill the gaps, but if the shutdown drags on or they don't have ready access to extra savings, they may want to consider other options for increasing their liquidity,” she adds.

One option rising to the surface: home equity lines of credit (HELOCs). 

With homeowners sitting on record levels of tappable equity—and interest rates recently falling to their lowest level in about a year and a half—home equity lines of credit can provide quick access to cash at lower rates than credit cards. But experts caution that HELOCs are no silver bullet—while they can act as a lifeline, they also carry risks that could leave borrowers more vulnerable if the crisis deepens.

Why some workers turn to HELOCs in a shutdown/economic uncertainty

Without a clear timeline for when paychecks will resume—or enough savings to bridge the gap—many are forced to explore less conventional ways to stay afloat.

“Home equity lending products can serve as useful financial tools,” explains Scott Campbell, senior director of consumer credit management at Synovus. “However, they involve the consumer’s equity in their home.”

To Campbell’s point, a HELOC allows homeowners to borrow against their home’s equity through a revolving credit line—similar to a credit card but typically with much lower interest rates. That’s part of the appeal, especially when money gets tight.

“HELOC rates could be half of what someone might be paying to their credit card debtors,” Shmuel Shayowitz, president and chief lending officer at Approved Funding, told Realtor.com in June.

For workers facing a furlough, pay freeze, or delayed income, that lower cost of borrowing can act as a critical buffer—especially if they already have a HELOC in place. Unlike traditional loans, HELOCs are not lump sums. Homeowners can draw what they need, when they need it.

“If you find yourself in this situation, tapping into an existing home equity line of credit (HELOC) can unlock necessary funds quickly for you,” says Wendy Morrell, who leads home equity strategy at U.S. Bank.

An opportune moment

The timing may also be on workers’ side. HELOCs are pegged to short-term interest rates, which means they tend to respond more quickly to moves by the Federal Reserve than mortgages or other fixed-rate loans. That’s made them an increasingly attractive option as the Fed recently cut interest rates by a quarter point.

HELOC rates have already ticked down from their 2024 peak. Median rates dropped from around 9.37% a year ago to roughly 7.88% in late September 2025, according to Bankrate. It’s a sizable dip that can unlock affordable access to cash for households that need flexibility.

“I’m already seeing folks tap HELOCs again,” Matt Schwartz, a mortgage broker at VA Loan Network, told Realtor.com in August. “What’s funny is a lot of them don’t actually touch the money right away. They’ll open the line now just to have it ready, kind of like a safety net.”

That “just in case” mindset is exactly why some financial experts recommend applying for a HELOC before you’re in crisis. The application process often requires income and employment verification—two things that could become more complicated in the middle of a shutdown or layoff—though some “no doc” HELOC options exist.

For anyone anxious about a potential job loss, opening a HELOC early could mean the difference between financial stability and a scramble for high-interest debt. But that doesn’t mean it’s the right move for everyone.

The risks of HELOCs

While home equity lines of credit can be a financial lifeline during uncertain times, they aren’t without serious risks.

HELOCs carry variable rates, so when overall interest rates change, HELOC rates follow. 

“The biggest caveat is variable interest rates that can rise at the worst possible time for cash-strapped households,” says Eric Croak, a certified financial planner, wealth management advisor, and president of Croak Capital. “The convenience of having a credit line at a moment’s notice can devolve into financial stress if it’s carried for years.”

Unlike fixed-rate loans, the interest on most HELOCs reset monthly. And as the Federal Reserve wages simultaneous wars against a softening job market (which incentives them to keep interest rates low) and persistent inflation (which incentivizes them to keep interest rates high), it’s unclear how long today’s rates could last. 

That uncertainty can leave homeowners dependent on HELOCs vulnerable to taking on borrowing costs that they can’t realistically afford.

Another caveat is that HELOCs draw on an asset—your home—that may already be vulnerable in a downturn. 

“A HELOC draws liquidity from an asset whose value may already be deteriorating, while exposing the borrower to lender discretion and accelerating foreclosure remedies,” explains Chad Cummings, a tax attorney and CPA.

That risk can become very real, very fast. Especially in a shutdown that has a disproportionate impact on a single housing market, like Washington, DC. We’ve already seen this happen after mass layoffs rocked the nation’s capital.

Following the announcement of thousands of federal job cuts under the Department of Government Efficiency, for-sale inventory in Washington, DC, surged more than 56% year over year in March 2025, according to Realtor.com data. New listings ticked up, too—suggesting both a slowdown in buyer demand and a potential wave of forced selling as jobless homeowners look to offload properties before falling behind.

In markets disproportionately affected by layoffs or furloughs, it’s not just credit terms that shift—it’s the collateral itself. As home values soften, the very equity that makes a HELOC possible can shrink or disappear, leaving homeowners with less to borrow against and more risk if they’ve already tapped their line.

In simpler terms, “a HELOC it is ultimately a loan that must be paid back,” says Hale. “And if the borrower cannot do that, the lender can take the house back.”

The upside of HELOCs during uncertainty

Despite the risk, HELOCs are a popular option for a reason: They offer a financial cushion with more wiggle room than traditional loans and at a lower cost than credit cards.

“Home equity offers a lower interest loan than unsecured borrowing and provides more flexibility with the ability to draw as needed, fix a rate on a draw—up to three at a time—and to make interest-only payments,” says Morrell.

That access to liquidity—combined with lower rates—is why some financial experts consider HELOCs a smart option in times of economic stress.

Of course, a HELOC isn’t a substitute for an emergency fund, but in a government shutdown or prolonged layoff, it can be a critical lifeline for homeowners with enough equity built up.

Just remember, it’s not free money.

“A HELOC is a great option if you have equity to borrow against and the financial discipline to pay it back,” emphasizes Croak.

Who benefits the most from a HELOC?

Not every homeowner will—or should—tap into a HELOC. But for certain groups, it can be a powerful tool in the face of a government shutdown or income disruption.

“Federal workers, contractors, and retirees whose income stream depends on federal benefits may get the most use out of a HELOC during a government shutdown,” says Croak. “The same might go for homeowners in high-cost housing markets, since even short-term income disruptions can make a big difference in larger mortgage payments or other obligations.”

It’s not just direct employees of the federal government who could benefit.

“Homeowners who rely on government services for benefits or payments or someone potentially working for the government who may be furloughed because of a shutdown and may need access to funds to cover essential expenses and bridge short-term gaps in income and benefits,” adds Morrell.

For borrowers who already have HELOCs in place, these credit lines can provide a crucial buffer in turbulent times. But for others, the window to apply may be closing—especially if a shutdown leads lenders to reevaluate risk.

A safety net with strings attached

A HELOC can be a useful bridge in uncertain times—but it’s not without cost, and it’s certainly not a long-term solution.

In times of financial strain, home equity can be a useful pressure-release valve as a relatively accessible form of wealth to tap into. While the recent resurgence in HELOCs has largely been driven by years of record appreciation and relatively low interest rates, growing economic uncertainty may now be playing a larger role. The last time they were taken out at such a high rate was 17 years ago—in 2008, according to a report from ICE Mortgage Technology.

But treating your home like an ATM only works if three conditions hold steady: interest rates stay low, home values remain strong, and your income bounces back. If any of those variables shift, the safety net starts to fray and the debt becomes harder to manage.

That vulnerability points to something bigger. After years of riding the appreciation wave, many households now find themselves increasingly exposed to market forces they can’t control. When paychecks stop, property values slip, or borrowing costs rise, the fallback isn’t always public assistance—it’s private debt, backed by the roof over your head.