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2 Times You Should Never Tap into Your Home Equity

Thumbs up—and down—on 7 uses you might be considering

YOUR HOME’S VALUE shouldn’t be overlooked as you build your financial strategies for the future—and the equity you hold in it is one resource you can draw on to help you cover certain expenses.

But, there are some expenses that you should never use home equity for, says Marie Imundo, senior vice president of Mortgage Product Strategy, Global Wealth and Investment Management at Bank of America. After all, why put at risk the place where you raise your family and dream at night? In the following slideshow, Imundo gives her thumbs up—and down—on seven home equity uses you might be considering.

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Graphic showing an illustration of a house and a hammer with copy that reads: Home Equity Do’s and Don’ts — Value-adding home improvements — Paying for a renovation may make sense, because you’re improving the asset that underlies the loan.
Graphic showing an illustration of a car with copy that reads: Home Equity Do’s and Don’ts — Auto purchases — If you can pay off the car in a few years, this is fine. You wouldn’t want to keep paying it off through the life of a 30-year mortgage, though — that’s longer than the car will last.
Graphic showing an illustration of two people shaking hands with copy that reads: Home Equity Do’s and Don’ts — Funding a business — Not a good idea. Starting a new business is a risky enough venture on its own without putting your family’s house on the line.
Graphic showing an illustration of a diploma and graduation cap with copy that reads: Home Equity Do’s and Don’ts — Education — The interest rate on a home equity line of credit is likely to be lower than a personal loan — but bear in mind that interest on HELOCs is no longer tax-deductible unless the loan is used for home improvement or repair. Disclaimer: Merrill does not provide tax advice. Please consult your advisor regarding interest deductibility.
Graphic showing an illustration of a calculator with copy that reads: Home Equity Do’s and Don’ts — Debt consolidation —  Paying off high-interest credit card debt through your home’s equity could save you a bundle in interest, but this is only a good call if you can change the behavior that got you into debt in the first place. Disclaimer: The relative benefits of a loan for debt consolidation depend on your individual circumstances. For example, you may realize interest payment savings by making monthly payments towards the new, lower interest rate loan in an amount equal to or greater than what was previously paid towards the higher rate debt(s) being consolidated.
Graphic showing an illustration of a medical file with copy that reads: Home Equity Do’s and Don’ts — Emergency medical expenses — If you’ve tapped out your emergency fund and can afford the monthly payments, your home’s equity may be a reasonable source of emergency funding.
Graphic showing an illustration of a flower with a dollar sign, with copy that reads: Home Equity Do’s and Don’ts — Investments —  If an investment goes south, you don’t want to be paying for it for years with an interest-bearing loan — and put your house at risk while you’re at it.

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