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House of Cards?

Home-equity borrowing could be risky business as interest rates rise.

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This story appears in the October 2003 issue of Entrepreneur. Subscribe »

Home values are way up, interest rates are way down, and personal incomes have been way stagnant. Should you tap into that burgeoning home equity to fix the family room, buy a new car or pay off credit cards? For millions of Americans over the past two years, the answer has been a no-brainer. Fueled primarily by interest rates, the total outstanding value of mortgage debt hit a record high in recent months-while owners' equity as a percentage of home values dropped to an all-time low.

The reasons behind the surge in home-equity borrowing are both obvious and compelling. The interest rate on a home-equity loan or line of credit tends to be far less than that on credit cards, interest is tax deductible (unless you get a jumbo loan, worth more than the value of the house), the repayment terms are spread out and somewhat flexible, and just about anyone with a house has access to the money.

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