Home Equity Line of Credit


Home Equity Line of Credit

Home Equity Line of Credit

A home equity line of credit, sometimes called a HELOC, is considered to be a loan where the lender will agree to lend a certain amount of money within an agreed upon time, where the collateral is the borrower’s equity in his/her home. A home equity line of credit works just like a credit card. The borrower is allowed to access a certain amount of money for the life of the loan, which is set by the lender. A home equity line of credit is accessed by specially issued checks or credit card that has been designated for this account. A home equity line of credit is negotiated by the financial institutions much like a home or mortgage loan. You will have to pay off the home equity line of credit when you sell the home.


A home equity line of credit can offer an assortment of financial benefits for many potential borrowers. One benefit of a home equity line of credit is that you can pay off high interest debt and the interest rate with a home equity line of credit is usually much lower than what is charged by most credit card companies. When you use a home equity line of credit to pay off higher interest debt, you will be able to pay off the debt more slowly without struggling to keep up with credit card payments at the same time. You should also remember that if you fail to make the required payments of your home equity line of credit could put your home into foreclosure. Another benefit of a home equity line of credit could be that the IRS will allow you to claim the interest that you pay on a home equity line of credit as a tax deduction. A last benefit of a home equity line of credit is that this type of loan can help your overall credit standing. Once the bank or lender approves your home equity line of credit and you begin to make payments, this new line of credit will appear on your credit report. By making timely payments and charging less than 30 percent on your home equity line of credit, you will be able to increase your credit score. According to FICO, the most important factor in determining your credit rating is your payment history with all of your creditors.