Renovations, credit card debt, big ticket purchases. These are all common reasons why homeowners tap into their home’s equity. However, beware of jeopardizing your credit and your home, warns the American Banker’s Association.

To help decide when a home equity loan is a financially sound choice, the American Bankers Association offers these a number of tips to consumers.

Short-term vs. long-term debt

If you use your home for additional credit, the proceeds from the loan should be used to finance like assets, advises the ABA. For instance, using the equity for renovations that increase a home’s value rather than to pay off credit cards, which may put you further into debt.

How much is too much?

Don’t borrow too much money. Some lends will allow a homeowner to borrow up to 85 percent of the appraised value of a home (minus what is owed on the first mortgage). The ABA, however, recommends that homeowners not borrow more money or for a longer period that what is needed.

Compare all costs

Home equity loans are essentially another mortgage, and are processed similarly. Therefore, if the home hasn’t been appraised in the last 6 to 12 months, homeowners will need an appraisal, and possibly face title insurance, closing costs, attorney’s fees, title search fees and other charges, according to the ABA. Be aware of the various fees when weighing the benefits because they may negate the value of the home equity loan.


The ABA also recommends that homeowners::
  • Ask questions and understand the answers. As with all loans, it’s important that you feel comfortable with the lender, the process and the outcome.
  • Keep accurate, specific records. Include information on the contract, when you’ve paid bills and any fees paid. Be sure to challenge inaccurate charges.
  • Like a mortgage, you can, for any reason, within three days of signing a contract change your mind in which your home is offered as security.


The ABA offers a number of tips dealing with home ownership at its Web site,