Summary

Your home equity is one of your greatest sources of long-term wealth. You don't want to treat it lightly or blow it on short-term spending.

Credit Limits

• In general, you shouldn't use your home equity to buy anything that declines in value.

• If you decide to tap your home's equity, try to keep your total borrowing (your mortgage plus any home equity loans or lines of credit) to 80% of your home's value. That will help you get good rates and terms, as well as preserve an important financial cushion for emergencies.

• Make sure you can make more than minimum payments on any home equity loans or lines of credit. If you can't manage that, you can't afford whatever you're using the home equity to buy.

Shopping Tips

• The rate you get on home equity borrowing depends heavily on your credit score. Check out the free Loan Savings Calculator at MyFico.com to see what kinds of rates you should expect, given your score.

• Contact several different lenders to shop for the best rates and terms. As long as you do your shopping within a two-week period, all mortgage-related inquiries will be counted as one, which will greatly limit the impact on your credit score.

• Don't pay a fortune to get a home equity loan or line of credit. Many lenders will set these up for free, particularly if you keep your total lending below 80% of your home's value.