Borrowing against your home might make sense in certain situations, such as to finance home improvements, but using your home's equity to invest is always risky and could jeopardize your financial stability. And the potentially high value of these loans can also make home equity a prime target for scammers. FINRA has seen an increase in reporting of fraudulent schemes involving home loans taken out for investment purposes.
Here are some things to know if you're considering using your home's equity to invest.
Potential to Lose Your Home
Lenders offer different ways for homeowners to borrow money against the equity (ownership) they've built in their home, including home equity lines of credit (HELOCs), home equity loans and mortgage refinancing. Each of these methods involves taking out a loan that must be repaid with interest, in addition to fees and costs charged for these loans. Failure to pay on any loan against home equity can result in foreclosure, meaning you could lose your home.