Home Equity Line of Credit
Qualified homeowners can tap into their home’s equity with a Home Equity Line of Credit, or HELOC. Funds can be used to consolidate debt, pay of credit cards, or make home improvements, among other uses.
Different from a home equity loan which gives you a lump sum payment, a HELOC offers a line of credit that you can borrow against when you choose to.
Like credit cards, HELOCs also come with variable interest rates, and your monthly payment will depend on how much you borrow and the current interest rate.
You typically need good credit to qualify, and these loans won’t work for consumers who don’t have considerable equity in their home.
Advantages of a HELOC
- Interest rates are low
- Interest may be tax-deductible
- You can borrow only what you need
- Flexible repayment options
Disadvantages of a HELOC
- You’re using your home as collateral and risk foreclosure if you can’t pay
- Variable interest rate
- Risky if you are financially undisciplined
- Reduces the equity you have in your home
- If home values drop, you could end up owing more than your home is worth