What Is A Home Equity Line Of Credit
If you are interested in borrowing money against the value in your home you will find that you will be given two separate options. There is the option of a home equity loan or a home equity line of credit. Many people get these two types of loan confused as being the same thing but they are not. They are two totally different types of debt.
When speaking of a home equity loan you will be given the entire lump sum of the loan value at one time. This is perfect for when you are doing a large project such as a home improvement or even purchasing a new vehicle. You will also have a set payment amount to be paid every month until the loan is paid in full.
A home equity line of credit works completely different. Rather than being given a lump sum of money like a home equity loan you are given a line of credit, which is a flexible amount and can be used over a certain period of time. It is very similar to a credit card and you can have access to the funds whenever you need them.
The Advantage Of A Home Equity Line Of Credit
If you are considering obtaining a home equity line of credit you will be happy to know that you will only be required to pay the interest on the funds that you have withdrawn from the credit line. This makes budgeting your money a little more manageable. Another advantage is that most often there are no closing costs associated with this credit line. This will save you money when it comes time to get the loan.
The Disadvantage Of A Home Equity Line Of Credit
With advantages there are also disadvantages. The first disadvantage is that the interest rate associated with this type of line of credit is a variable rate so that it can change and can often make a large difference in your payments. More often than not the interest rate will go up and not down. A second disadvantage is that if you have a home equity line of credit it is possible that you credit history and income amount will be reviewed every so often and it is possible that if your credit score drops that the lender will close your line of credit.
The repayment amounts on a home equity line of credit that are made every month as well as the interest that is made could possibly be tax deductible. However there may be limitations to it. You will find that only part of the interest can be deducted and it cannot exceed the value of the collateral on the home. It also has to be less that the amount of $100,000.
Home equity lines of credit may be the perfect solution for you if you want to have access to cash but you do not need it all right away. It might also be possible that this type of loan could be a tax deduction. If you have questions you should contact a financial consultant and they will be able to lead you in the right direction.