So, What Is A Home Equity Loan

Category: Finance, Credit.

Are you in debt? If you haven t, you might have heard this suggestion from someone else.

Have you refinanced your debt? So, what is a home equity loan? It is the amount of ownership you have in your house or the amount of cash you will receive from selling your house today. First, lets explain what home equity is. This equity in your house is what lenders let you borrow against. Very similar is the concept of a HELOC( Home Equity Line of Credit) . A loan against this equity in your house is called a home equity loan.

Unlike a loan which is a fixed amount. Originally, the HELOC was given out for financing improvements around the house. The line of credit is like having a credit card with a maximum limit of course. These days the HELOC is used for several other purposes. The key here is that the interest on other forms of debt is not tax deductible whereas on these equity loans is. So, how is the HELOC or the home equity loan different from any other form of debt.

Lets have a look at an example. So, you would be able to make purchases like you would with a regular credit card. Lets say you have a HELOC with a limit of$ 20000 at an interest rate of 10% . But, the interest that would accumulate on the amount owed would be tax deductible unlike a regular credit card. You generally have a significant credit line at your disposal for emergency use. As you have probably noticed, there are some key advantages of this form of credit. The payments you will make can be kept low because the interest terms are usually lower than most credit cards.

If you had the option of using a card with the same interest terms as your HELOC you would still be better off using the latter. Don t forget that the interest owed is tax- deductible too. If you are serious about controlling your debt rather than letting your debt control you, a home equity loan could be a an ideal tool for you. To help you with these calculations there are calculators for debt available online. You should calculate the amount of money you would be spending in the form of payments and interest over the total life of the debt in both cases i. e. in the case of a credit card and in the case of a HELOC. Before leaving we would want to offer a suggestion. Limit its use to buying investments or for any emergency situations.

Don t fall in the trap of impulse buying using your HELOC. According to us thats the best use of it.

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