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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.

Home Equity Loan
$30K HELOC 4.82%
$50K HELOC 4.47%
$30K Home Eq 4.47%
$50K Home Eq 4.11%
$75K Home Eq 4.11%

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Rates provided by Bankrate.com.
Dopey home equity move
When tapping equity makes little sense
Paying for home improvements, credit card debt, emergencies ... if you have equity in your home, you're probably eligible to borrow against it by taking out either a home equity loan or a home equity line of credit (HELOC).

But doing so can sometimes mean you're shooting yourself in the foot.

Here's when the move can be dopey:

Borrowing against your equity means you put your house at risk of foreclosure if you can't pay back what you owe with interest. So don't do it if:

  • You habitually run a high credit card balance or have a hard time meeting your monthly payments. If you're so stretched that you need home equity to pay for your daily life or vacations, you should downsize your lifestyle.
  • There's not much difference between the interest rate you can get on your home loan and the rate on your credit card.
  • You want to pay off low-rate debt like a federal student loan. Federal student loan rates are typically lower than those on home equity loans and HELOCs.
  • You want money to invest in the stock market. (Money Magazine's Walter Updegrave explains why.)

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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