While fortunes have been made over the last several years by investing in cryptocurrencies, declines in the market have cost investors hundreds of billions of dollars. If you want to invest in crypto and don't have the cash, can you borrow against your home's equity to do it? Yes, but this would come with a lot of risk.

How Home Equity Loans Work

A home equity loan allows you to borrow against the equity you've accumulated in your home. You pay back the loan with fixed monthly payments over a set period of time, such as 10 or 20 years. By using your home as 澳洲幸运5官方开奖结果体彩网:collateral, you can benefit from a much lower interest rate than you'd get with 澳洲幸运5官方开奖结果体彩网:unsecured debt like a 澳洲幸运5官方开奖结果体彩网:credit card or a 澳洲幸运5官方开奖结果体彩网:personal loan.

However, because your home secures the loan, you run the risk that if you can't keep up with the payments, the lender could 澳洲幸运5官方开奖结果体彩网:foreclose, and you could lose your home. In addition, if home prices fall and your home's value decreases to the point where you owe more money than it's worth, you will be 澳洲幸运5官方开奖结果体彩网:underwater. That can make it difficult or impossible to sell your home unless you can come up with additional money to pay off your lenders. This situation happened to thousands of Americans during 澳洲幸运5官方开奖结果体彩网:the financial ꦍcrisis of 2007 to 2008.

To qualify for a home equity loan, you will need to have at least 10% equity in your home (and often 15% or 20%), a 澳洲幸运5官方开奖结果体彩网:good credit score, and proof of income sufficient to pay back the loan. The maximum you can borrow will be a percentage (such as 80%) of your equity.

How Investing in Cryptocurrencಌies With a Home Equity Loan Works

Lenders generally do not restrict how borrowers can use their home equity loan proceeds. So, there's technically nothing stopping you from wagering a large chunk of the equity you've built in your family's home on the 澳洲幸运5官方开奖结果体彩网:cryptocurrency of your choice.

There are thousands of cryptocurrencies to choose from on 澳洲幸运5官方开奖结果体彩网:cryptocurrency exchanges. Bitcoin, 澳洲幸运5官方开奖结果体彩网:Ethereum, and Tether are a ꦿfew of the best known and new ones seem꧃ to come along every day.

The Risks of Investing in Cryptocurrency

For investing in crypto (or anything else) with a home equity loan to make financial sense, you need, at a minimum, for your investment to increase in value by more than the interest rate you're paying on the loan (after accounting for the relevant taxes on any investment gain). Under curre♏nt rules, cryptocurrency gains are taxed atꦫ the same rate as other capital gains.

Let's say you borrow $40,000 to invest in cryptocurrency and are in the 15% capital gains tax bracket. If you take out a loan at 6% interest with no fees or closing costs, you will need your crypto investment to grow at an average annual rate of at least 7.06% to break even. That's after accounting for interest on the home equity loan and capital gains tax on your crypto profits.

If you're lucky, your crypto investment will grow at a rate many times that—but don't count on it. While cryptocurrencies have delivered spectacular returns over certain periods, they're also exceptionally volatile and prone to large ups and downs.

The Bottom Line

You can use a home equity loan to buy cryptocurrency, but it's extraordinarily risky and could leave you out on the street. While the gains with some cryptocurrencies have been significant (at least in years past), the losses can be devastating. If you wouldn't borrow against your home to bet on black at your local roulette table, you shouldn't do it to buy crypto.