6 Hidden Dangers of Using Your Home Equity to Fund Investments

As property values have climbed significantly in recent years, more investors have considered leveraging their home’s equity to finance investments or consolidate debt. One controversial strategy gaining traction is using a HELOC—a home equity line of credit—to access cash for various financial goals. However, personal finance expert Dave Ramsey has vocally opposed this approach, calling it a risky gamble that can derail long-term financial security.

Before you estimate HELOC payment obligations, understand why this financing method carries substantial risks that many borrowers overlook.

Foreclosure: Your Most Valuable Asset at Risk

The fundamental problem with a HELOC is that your home becomes collateral. Unlike unsecured debt, failure to repay a HELOC can result in foreclosure—meaning you could lose the single biggest investment you’ve ever made.

While borrowers often assume this worst-case scenario won’t happen to them, market downturns and unexpected financial setbacks are unpredictable. If your investment underperforms or income disruption occurs, you may struggle to service the loan. The consequences are severe: damaged credit, displacement from your home, and years of financial recovery.

The Psychological Toll of Financial Complexity

Ramsey emphasizes that taking on complex financial maneuvers creates unnecessary stress. When you borrow against your home’s equity to pay down other debts or fund investments, you’re essentially trading one financial burden for another—not eliminating it.

The problem compounds when your borrowed funds fail to deliver expected returns. If the asset you purchase with HELOC funds depreciates instead of appreciates, you’re now responsible for repaying borrowed money that funded a declining investment. This scenario creates a vicious cycle of regret and financial anxiety that could have been avoided.

Variable Interest Rates: An Unpredictable Cost Factor

HELOC rates fluctuate based on market conditions. You might begin borrowing at an attractive interest rate, only to watch rates climb over time. As rates increase, your monthly payments rise accordingly—potentially making the entire strategy economically unviable.

When you estimate HELOC payment scenarios, most people calculate based on current rates. They fail to account for how much additional interest they’ll pay if rates rise by 2-3%, turning an already marginal investment into an expensive mistake.

You’re Masking Debt, Not Eliminating It

Ramsey advocates for genuine debt elimination, not debt rearrangement. Moving borrowed money between accounts creates an illusion of progress while leaving you in a debtor’s position.

A HELOC doesn’t address the behavioral and budgeting issues that led to debt accumulation in the first place. Ramsey notes that personal finance is 80% behavioral—meaning the real solution requires disciplined budgeting and intentional payoff planning, not sophisticated financing tricks.

Borrowing Spirals: Overextending Without Realizing It

A HELOC provides a revolving credit line, making it dangerously easy to borrow more than intended. Many borrowers underestimate how much they’ll actually withdraw, leading to balances exceeding their expectations.

This overextension creates budget strain. When faced with obligations larger than anticipated, you might damage your credit by missing payments or resort to even riskier borrowing options. The flexibility of a HELOC becomes a liability rather than an advantage.

Substituting Discipline With False Security

Some people view a HELOC as an emergency backup plan, but Ramsey disagrees sharply. While a HELOC can technically provide emergency funds, it’s an inferior strategy compared to building an actual emergency savings account.

When you rely on a HELOC for emergencies, you’re adding a loan obligation with variable interest rates to your crisis. This transforms a temporary setback into a long-term financial liability. Building a proper emergency fund—typically 3-6 months of expenses—provides genuine protection without creating debt obligations.

The Bottom Line

Before using your home’s equity to finance other goals, consider whether the strategy truly serves your long-term financial health or simply creates complexity and risk. The safest path remains building savings, living within your means, and securing your home as an asset rather than leverage for speculation.