If you are thinking about getting a HELOC or home equity line of credit, you should know the pros and cons and the comparison as it relates to other loan products. Below is a brief summary of some of the benefits that you should expect with a home equity line of credit.
Home equity lines of credit have lower closing cost than other loans. In some cases, the borrower does not have to pay a closing cost because they are waived by the lender. This is especially true, if your credit is good. So, it all depends on the lender and your credit situation.
Your HELOC will be secured by your property and so, the interest rates might be lower than other loans such as personal loans or credit cards. HELOCs have an adjustable rate and that is one reason why the interest rate is lower than even a basic home equity loan.
A home equity line of credit allows the borrower to seek an amount desired as long as there is enough equity in the home. The good thing is that the borrower pays the interest only on the amount that is borrowed. For this reason, the borrower can cover the expenses related to the loan over time.
A home equity line of credit is considered as a mortgage and so the borrower can deduct a certain amount as an expense. For example, if you pay interest on a HELOC loan up to $100K, you can claim the expenses on your tax return. This is especially true, if you itemize your tax return.
Use Funds Wisely
You can use the money you receive from a HELOC any way you desire. You don’t have to tell the lender how you will spend the funds; whether you want to use it for home improvement, go on vacation, make a major purchase or paying off a school loan. The burden will be on you and so you have to use the money responsibly.