By Tom Cleary
Home equity loans allow you to borrow against the value of your home to make discretionary purchases or pay off debt. Like a credit card, a home equity line of credit (HELOC) lets you borrow up to a preset limit. As you pay down the credit line, you can use the credit again as you need it. You can use a home equity loan for anything you want, such as:
- Remodel, renovate, or improve your house or property
- Fund the purchase of a second home
- Consolidate high-interest debts
- Pay for any personal expenses you may have
Incurring additional debt may not always seem like a wise financial decision, but home equity lines of credit offer a variety of financial benefits for homeowners. Some of those benefits include:
- HELOCs May Be Tax Deductible — The IRS may allow you to claim the interest you pay on a HELOC as a tax deduction (consult a tax advisor for specific deductibility rules). The size of your HELOC debt must be less than $50,000 ($100,000 for married couples filing jointly) to qualify, but other forms of borrowing, such as credit cards, don’t allow you to receive a tax break on your interest charges.
- Home Equity Loans Typically Have a Lower Interest Rate Than Most Credit Cards Although a HELOC usually carries a higher interest rate than your original mortgage, the rates are often much lower than those charged by credit card companies or other short-term loan providers.
- Interest Only Payments — Although making payments against charges on your HELOC is necessary to pay down the balance, most HELOC lenders don’t require you to pay on the principal each month. This is beneficial if you’re in a financial bind because you can choose to pay only the interest charges until your finances recover – an option most lenders don’t allow.
- No Fees When Using Your HELOC — HELOCs do not require you to pay any type of fees to access your credit line.
- Convert to a Fixed-Rate Mortgage — A HELOC can allow you to convert the home equity loan to a fixed-rate mortgage whenever you’d like (pending credit approval).
- Pay it Off When You Choose — You have the flexibility to pay off your HELOC whenever you’d like.
If you believe that you could benefit from a home equity line of credit or have additional questions, speak to the loan officer at your local Federated Bank branch or visit https://federatedbank.com/personal/home-equity-lines-credit/ for more information.