Home Equity Line of Credit: The Benefits

You may not have a lot of money in the bank, but there is a good chance you have quite a bit (or at least a little) of equity in your home. This is the difference between the amount you owe your mortgage lender and the actual value of your property.

With a home equity line of credit, you can borrow money against your home’s equity for everything from paying off debt to fixing up your property.

Here are some of the many benefits of a home equity line of credit:

1. Reasonable interest rate. There is no denying that most home equity lines of credit have a higher rate than your original mortgage. However, this rate is often lower than what you would get with a credit card or other type of loan (personal or construction, for example).

The lower the interest rate the less money you will pay out over the duration of the loan.

2. Option to make interest only payments. At some point, hopefully sooner rather than later, it is essential to tackle the balance of your home equity line of credit. That being said, many lenders do not require you to make principal payments every month. Instead, you can pay interest only for a specified period of time, such as 10 years.

Note: make sure you know the terms and conditions of your home equity line of credit, as you don’t want to get stuck in a position where you owe principal payments but don’t have the money to stay current.

3. Tax deduction. Did you know the IRS allows you to claim interest paid on a home equity line of credit as a deduction? There are qualifications to discuss with your tax professional, but most people qualify.

With other types of debt, such as a credit card, you are not permitted to take a deduction for interest charges.

A home equity line of credit is not the right decision for every homeowner, but if you are in search of a loan it is an idea to consider. You may find that it is best for you at the present time.