Chapter 5. Home Equity Borrowing

You don't want to squander your home equity—a long-term asset—on short-term spending. That's why I've written several articles for the MSN Money site warning consumers not to tap their equity to pay for stuff like vacations, big-screen TVs, and credit card debt.

Almost inevitably, the articles are accompanied by big ads from lenders urging consumers to tap their home equity to pay for stuff like vacations, big-screen TVs, and credit card debt.

Some readers see the irony and send me e-mails about the contrast between my sober admonitions and the “Borrow! Borrow! Borrow!” siren song of the ads.

But many people, I'm afraid, miss the advice altogether and just go for the loan.

The voices encouraging you to spend your home equity freely are, unfortunately, loud and numerous. If you own a home, your mailbox is probably filled with come-ons for low-rate home equity loans. Lenders' ads for home equity lending fill the airwaves, and even your tax pro may get into the act, urging you to consolidate your debt into a tax-deductible package.

There are cases where a home equity loan or line of credit can be a smart solution. But too often it's used to fuel unwise spending.