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.

A home's true cost
Mortgage Payment
month year
TIP: Use about $660 a month for every $100,000 you borrow.
Annual Maintenance
TIP: Figure 2% to 4% of the purchase price.
Property Tax and Association Fees
TIP: Check with your broker.
Annual Utility Costs
TIP: Get recent bills for utilities (winter and summer), including trash removal, and water and sewage service.
Annual Insurance
TIP: Get estimate at insure.com and insweb.com.
Gross annual income
Total annual housing expenses
Expenses as % of your gross income
Your total annual outlay should be no more than a third of your gross income (ideally, less). Your cost of ownership appears to be manageable with your income.
Your total annual outlay should be no more than a third of your gross income (ideally, less). Your cost of ownership appears to be more than may be comfortable with your income.
Smart mortgage move
When prepaying makes good 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.

Here's when the move can be smart:

If you are taking care of your major financial responsibilities, you're a good candidate for pre-paying your mortgage, according to Keith Gumbinger, vice president of mortgage information publisher HSH.

Especially if you think the extra money you put toward your mortgage will give you a better after-tax "return" than if you invested it in the stock and bond markets.

Here's how Gumbinger recommends figuring out that after-tax return: Multiply your mortgage rate (say it's 8 percent) by the inverse of your tax bracket (if you're in the 28 percent bracket, the inverse is 72 (100-28)). So in this case prepaying your mortgage is like getting a guaranteed after-tax return of 5.76 percent (0.72 x 8).

(Here's when it's not a great idea.)

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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