Why Should You Have a Home Equity Line of Credit?

For homeowners, tapping into their home equity has long been a popular way to get the money they need. Proceeds from home equity loans are often used to consolidate bills, make repairs, take care of emergency expenses or help pay for a child’s college education. The only catch is that the loan is secured by your home, so if you fail to repay it, the bank can foreclose.

But many homeowners do not realize that there’s another option for accessing their equity: the home equity line of credit, or HELOC for short. A HELOC offers all of the benefits of a home equity loan, only with less risk.

Here is some borrowing advice and reasons to consider a HELOC:

• They offer lower interest rates than credit cards and other types of loans. Like home equity loans, HELOCs are secured by your property. This means less risk for the lender, which translates to a lower interest rate for you. Even if your credit isn’t perfect, you could still get a decent interest rate.
• Closing costs are lower than first mortgages. If you get a home equity loan, you’ll usually have to pay closing costs, although they aren’t generally as high as those for a first mortgage.
• Payments are lower than they are for most other types of loans. This is not only because you’re paying less interest, but also because they are spread out over a longer period of time (often 10 years). You may even have the option to make interest-only payments, but the balance owed may be due in full at a specified date.
• They’re flexible. You get a line of credit for the full amount for which you qualify according to the amount you owe on your mortgage and your home’s appraised value. But you can borrow any amount up to that, although you may have to take a minimum initial advance. It’s good to know how much money you have access to but be able to borrow only as much as you need.
• They give you peace of mind. If your car needs expensive repairs, your hours at work are cut or you fall ill, your line of credit will be there to see you through. You won’t have to go through a lengthy application process or pay additional fees. Just request the money you need and use it any way you need to.
• There are tax benefits. Interest on a HELOC is often tax deductible, just like regular mortgage interest. This may result in a reduction in the amount of taxes you owe or a refund of taxes you’ve paid. Check with your tax advisor for details.

A HELOC offers the flexibility and ease of access of a credit card with the low interest rate of a home equity loan. It’s no wonder they have become so popular. If a HELOC sounds good to you, talk to your lender of choice about your options.