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Home Equity Line of Credit: HELOC

Home Equity Lines of Credit: The Good and the Bad ; By Home Equity Loans Editor

When you get a home equity loan, there are two types that you can avail of: a home equity line of credit or a bulk home equity loan. The difference between the two is that the home equity loan will allow you to get the full amount of a loan in bulk which uses your house as collateral. As for a home equity line of credit, your home is used as collateral and you can get money from the lender as needed. They will give you the money as a type of credit card or in a series of check as you request them.

When you have a home equity line of credit, you are faced with a whole range of advantages and disadvantages. The advantages of getting a home equity line of credit is that when there is an emergency, you can ask for money from the lender and it will be given to you since you have a line of credit with them. So if there is a major home repair that you need to do, you can immediately get cash to cover the expenses that you need. You might lose your job and you will still have your home equity line of credit to help you through the tough times before you find new work.

Another advantage is that you can avail of a home equity line of credit with a fixed interest rate which makes paying it back so much more affordable and manageable. Home equity lines of credit will usually have lower interest rates because the loan is tied up to your home. This means that they have more confidence that you will pay off the loan rather than you losing your home.

Yet another advantage is that there are certain circumstances, when you get a home equity line of credit, that the interest rate fees that you pay on the line of credit are actually tax deductible! For the United States, by checking out Publication Number 936 of the Internal Revenue Service, you will be able to find out whether you fall under this tax deductible status or if you are one of the exceptions.

Aside from all the advantages that a home equity line of credit may give you, there are also a few downsides to getting it. For instance, many of the line of credit loans will have interest rates that are variable and which are attached to a prime rate. So, this means that your balance may end up to be much higher than you first expected. Also, even though you have a line of credit that you withdraw each time you need the money, there is a minimum amount that you are required to withdraw, regardless of your need. And whenever you withdraw money, there are some transaction charges that they will charge you for making the withdrawal. This means you need to carefully plan the withdrawals you make to save money on the fees.

Lastly, your hold on your home will be limited once you tie yourself to a home equity line of credit. For instance, a lender may prevent you from renting out your home once you sign off on the loan. And if you do not pay off your loan as stipulated in the terms, you will lose your home and be left with nothing!

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