A home equity line of credit is a way to borrow money against the equity present in your home. Like any other credit card payments or loan payments, you are required to make monthly payments against the borrowed amount. Some benefits are listed below:
- It provides lower rates when compared to other types of credit.
A home equity line of credit generally provides lower rates when compared to other credit loans as it is an amount you are borrowing against the equity present in your home. The lender has a very low risk involved when it comes to losing and hence he can offer much lower rates.
- It is a flexible plan.
A normal loan allows you to receive a determined sum of money and makes you pay fixed installments every month until the end of your term. But, with a home equity line of credit plan, you can borrow the amount you see fit. It can be a minimal amount or the maximum you are allowed to borrow. The monthly installments are also variable.
- Tax advantages.
With a home equity line of credit, you can claim certain tax advantages. Since it is essentially a mortgage, you are allowed to claim a refund of the interest amount on your tax returns.
- Rates can be changed.
This is a benefit and a disadvantage of the home equity line of credit. When the rates are low, this may seem like a beneficial plan but the rates can increase also and we may end up paying much more than we thought we would have to. Thus, it is better to consider what the purpose of the withdrawal is and if a loan is necessary.
- You should consider your finances
A lot of people are attracted to taking HELOCs because of the low rates. But if you are making the investment in something which cannot replenish itself then you will be left with nothing but debt to pay off.
- It is a way to secure easy cash.
A home equity line of credit can help you secure easy cash. It is a sum borrowed from your home and the value can be easily given to you. This even enables cash payments to be made.
- It can be used for anything.
A home equity line of credit does not have any restrictions on use. It can be used for home improvements or a trip to Hawaii!