Home $weet home ... or financial folly

There are tempting ways to use your home for potential financial gain. The line isn't always bright, but there are some guidelines for when such moves can be smart ... or dopey.

What you need to save
Dopey mortgage move
When prepaying makes little sense
If you want to own your home outright, prepaying your mortgage can be tempting. Doing so potentially could save you tens of thousands of dollars in interest and years of monthly payments.

But that's not always the case.

Here's when the move can be dopey:

Neglecting important areas of your financial life just so you can have a mortgage-burning party sooner rather than later can erase the benefits of prepaying your mortgage, according to Keith Gumbinger, vice president of mortgage information publisher HSH. So don't do it if:

  • You don't have adequate emergency savings.
  • You're not saving enough for retirement. One study found that given the tax treatment of mortgage interest and retirement contributions, 38 percent of households that prepay their mortgage would do better using the extra money toward maximizing their retirement savings.
  • You don't have disability or life insurance and you're the main breadwinner in your family.
  • You have high-rate credit card debt.
  • By prepaying, you're not able to take advantage of short-lived but important opportunities, such as traveling to see your aging parents. "Your mortgage will persist for years regardless of how much additional principal you send," Gumbinger notes in HSH's "A Homeowner's Guide to Prepaying Your Mortgage."

Prepay mortgage? Yup

Prepay mortgage? Nope

Tap equity? Yup

Tap equity? Nope

Renovate? Yup

Renovate? Nope

Get an ARM? Yup

Get an ARM? Nope
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