Seven Ways to Be Home Equity Savvy Lesson 5, 6, 7

5. Get the tax deductions.

Just like with your first mortgage, the interest you pay on your home equity loan or HELOC may be tax deductible -- by up to $100,000 -- even if you're not using the loan for home-related expenses.

Your deduction may be limited if the combined amount of your first mortgage plus any home equity loans totals more than the property's actual value. For more information, check out IRS Publication 936.

6. Borrow no more than you need.

Ideally, I recommend keeping a minimum of 20 to 25 percent of equity in your home to ensure that you have a cushion should you ever find yourself in an emergency where you absolutely need to tap equity. This approach also grants you the peace of mind in knowing that you have some insulation against a declining real estate market.

To calculate your equity, simply take the current market value of your home and subtract all outstanding mortgages and home loans.

7. Don't use your home loans like an ATM.

Over the past several years, lenders have made it excessively easy to pull money out of your house. Many new first mortgages come with complementary pre-approvals for generous home equity lines, often equipped with fast-access tools such as checkbooks and ATM cards.

While these are great tools of convenience, be honest with yourself about whether you're responsible enough to handle the temptation.

The Ultimate Piggybank

Your home is very likely to be the foundation of your financial security. If you live off the equity in your home every three to five years by using it to pay off credit card debt, and then find yourself in a down real estate market like we're currently experiencing, you could wind up owing more on your home than it's worth.

This could lead to you being one of the millions who will lose their homes to foreclosure in the next few years. I don't want that to happen. So please be careful, and think twice before you borrow to pay down those credit cards.

Your home is the ultimate piggybank -- don't break into it unless it's a true emergency, or if doing so can truly help you live a richer life.