A HELOC is riskier for a lender because it’s second in line — after the primary mortgage — to be repaid in the event of a foreclosure. If there isn’t enough money to go around once the primary mortgage debt is paid off, a HELOC lender may be out of luck unless they are willing to sue.
For a borrower, that added risk results in higher interest rates. HELOCs that are kept until the end of the draw period and HELOCs that have balloon payments are associated with higher rates of default.