Thursday, June 28, 2012

Advantages of a Home Equity Line of Credit

In the mid 1990s, home equity loans became hugely popular and once they did, it wasn't long before home equity lines of credit weren't too far behind. These lines of credit differed from the loans because they offer small amounts of money over a longer period of time to be used for whatever you need, whenever you need it.

They became popular because of certain advantages they have in comparison to other mechanisms for consumers to borrow money, specifically credit cards or personal loans. The benefits of home equity lines of credit are mainly centered around taxes and your interest rate.

Today, this form of revolving credit is still widely popular, and for many of the same reasons as they were when the HELOC boom first started.

Advantages of Home Equity Lines of Credit

(1) Tax deductibility
You can deduct the interest you pay on the home equity line of credit. There are certain conditions that apply that usually pertain to the maximum amount of the line of credit and deductibility. The interest on credit cards or for a car loan is not tax deductible. Usually you can deduct the interest you pay on your home equity line of credit up to 0,000 of the amount you borrowed. But, that 0,000 amount can be increased if you use the additional money for improvements to your home. For more details talk to your bank or tax professional.

(2) Lower interest rate
Home equity lines of credit usually offer lower interest rates than traditional credit cards and car loans. The reason for the lower rate is that the credit is based by your asset, your home. Since it is a secured loan, whereas credit debt is unsecured, they can offer lower interest rates. This rate is usually below the Prime rate.

(3) Safety net
Home equity lines of credit offer a safety net for home owners. Since they are like credit cards in that they are credit available to you for whatever purpose you deem fit, it is accessible to you if a major purchase or emergency arises. And once you've been approved for your home equity line of credit, you'll be fully prepared when that emergency does rise. No waiting for the paperwork to go through on a second mortgage, or waiting for that credit card to arrive in the mail. Because you've set yourself up ahead of time with a home equity line of credit, you're ready for whatever life has to throw your way.
There are certain necessities in life: food/water, shelter and to pay taxes. Food and water do not offer tax deductibility and applying for a loan to pay for them won't either. But your shelter, your home, can. Remember to always try to make your money stretch and work for you. One way to do that is to take advantage of the many benefits that come with a home equity line of credit all of which let you borrow money at a much lower rate and save you more money over any other type of loan!

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