Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

Should I take out a value-added home equity loan?

Dear Dollar Diva,
What is a 125 percent value-added loan? Is it tax deductible? Is this program good if you have equity in your home?

You're asking about the high loan-to-value home equity loan. A high LTV lets you borrow more than your home is worth. Usually it's up to 125 percent of the home's value, but some lenders will go as high as 165 percent.

Here's why the Diva hates these loans:

• Sucking equity out of your home is hardly ever a good idea. This is your nest egg, and you certainly shouldn't tap into it to pay off credit cards or student loans, or splurge on timeshares or trips to Disneyland.

• Calling a high LTV loan a home equity loan is sneaky. Only the part that is secured by your home is a home equity loan. Anything above that is an unsecured loan.

• Because part of the loan is unsecured, you pay a much higher interest rate than you'd pay for a regular home equity loan. Unsecured loans, like credit cards, are always very expensive because the lender has nothing to take back if you default.

• You can only deduct interest that is secured by your home. You can't deduct the interest on the unsecured part of the loan.

• If you have to sell your home, you're in big trouble. Picture selling your home valued at $100,000 for $100,000. Then imagine that you have a 125 percent home equity loan on it. The buyer gives you $100,000 for your house, but you owe $125,000 on the HTV loan. I don't know about you, but most folks will have one helluva time coming up with the $25,000 shortfall.

The Diva's first general rule is, don't ever touch the equity in your home. Her other rule is, don't even think about a high LTV loan.

If you must tap into your home equity because of a dire emergency, read Bankrate.com's "How much home equity can you borrow" for some helpful tips.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.