Right before the last real estate bubble, lenders helped borrowers go pretty far out on a limb with what are known as 125 percent home-equity loans. Lenders were actually willing to lend creditworthy borrowers (or borrowers they deemed creditworthy at the time) 125 percent of their home's appraised value.

These home-equity lines of credit have extremely high payments (to offset the lender's risk) and limited tax deductions (since the IRS generally won't let a borrower write off interest on a loan based on more than 100 percent of a home's appraised value). Also, they provide a disincentive for borrowers to sell property in a slow market because they're “under water,” meaning that the sale price of the home will not cover their debt.

There are some borrowers who have used these loans to finance their children's college education and certain retirement expenses. Without the right advice and preparation, using one's home as a bank can be a terribly risky move.