Smart home equity move

When tapping equity makes good 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).

Here's when the move can be smart:

When rates are low, and you want make equity-boosting improvements to your home, borrowing against your equity can be a smart move since you'll be adding value to your home and will able to deduct the interest on the money you borrow to do so.

It also can pay if rates are low, and you have a lot of high-rate credit card debt that you want to pay off, assuming you're only using a small amount of home equity and don't plan to run-up your plastic again.

A HELOC can also augment your emergency fund -- especially if you've paid off most of your first mortgage and are about to retire. With a HELOC, you don't owe any money on it unless you draw against it.
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.