When to use home equity for cash​

Be honest with yourself about whether you can afford the loan. All of your monthly debt payments (nonhousing loans included) should total no more than 36 percent of your gross monthly

income. If you are retired and your loan payments would require you to increase the pace at which you pull money out of a tax-deferred retirement account, borrowing is harder to justify,

Pearson says. Unless you have plenty of money for future spending, can take the tax hit and have a long-term goal, such as fixing up a house you intend to sell later on, you shouldn’t be

depleting your retirement funds to spend now.​ And before you call your banker, know that the same price run-up that is building your home’s resale value has caused some disruption in the

loan market. Home appraisers, exercising caution as prices rise rapidly, have been valuing homes at less than what owners and buyers think their homes are worth, reports Amy Irvine, a

financial adviser who works in Corning, New York, and Parrish, Florida. She is finding that home resales are coming in about $20,000 to $30,000 above asking prices and appraised values. That

means both new buyers and refinancing owners will be able to borrow less than a higher appraisal would allow.​ That could keep you from borrowing as much as you would like, but it should

also protect you from the worst outcomes of the financial crisis of more than a decade ago. “People took out equity — and boom, the market corrected,” Irvine recalls. “And boom, people were

underwater.” ​Home prices could fall, of course, especially in overheated areas. So there’s much to be said for just sitting on your new equity, especially if you have no immediate need for

cash. ​ ​HOW TO BORROW​ Over the long term, the cheapest way to borrow against your house is with a traditional fixed-rate mortgage, especially when rates are low. In the March issue, I

wrote about how to do that and save for retirement expenses. But that does put you on the hook to repay a large sum of money with monthly payments over many years — or until you sell your

home. ​A home equity line of credit (HELOC) can be an easier and more convenient way to borrow smaller sums for a single need, like a home improvement or a car. But because the rates on most

of those loans are variable, you could end up owing a lot more if rates rise.​ If you watch TV, you’ve probably seen pitches for reverse mortgages — loans against your home that don’t have

to be repaid until after you no longer occupy it. All that marketing is a tip-off that these are a more expensive way to borrow. To get a reverse mortgage of about $165,000, you’ll pay in

the neighborhood of $15,000 in closing costs, according to the National Reverse Mortgage Lenders Association’s online calculator. (The closing costs of a refinancing, to make a comparison,

average less than $4,000 in most states, according to ClosingCorp, which collects those figures.) ​You can take the proceeds of a reverse mortgage in various ways, such as a lump sum or a

line of credit you draw on only as needed. Pearson suggests that the best use of a reverse mortgage may be if a married couple own a home and one of them needs assisted living or nursing

home care and the other wants to stay in the house. That couple could use the proceeds to pay for care, either away from or in the home. ​