Home Equity Loan Advantages

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A Home Equity Line of Credit is a common type of loan that homeowners often take out when they have a need for financing. Many banks and financial institutions refer to these unique home equity loan arrangements as a HELOC. In some ways a HELOC can even be compared to a credit card account because most of the time they are structured as a “revolving” account.

While a HELOC can be considered a type of home equity loan, it does have some unique features that make it a bit different. They also have some specific benefits that often make it the most attractive form of financing for people who have some equity in their homes.

Home equity is the value of the “unencumbered” portion of a homeowner’s property. In simple terms, it is the difference between the fair market value of your home and the balance of any mortgages that have been taken out against the home. If you have a home with a fair market value of $220,000 and the balance of all your mortgage loans is $120,000 in total, then you have a home equity value of $100,000 that you can borrow against to take out a home equity loan.

There are two primary ways that the equity in a home will build up over time. The first way that happens is through simply paying down the amount owing on any kind of mortgage equity loan that has been taking out against the property. The other way happens because of the overall appreciation of property values in a given area which can be very significant over the course of many years or in instances when there is a spike in the market.

The unique thing about the HELOC type of home equity loan is that you can be approved to borrow up to the amount of equity in your home, but you are not required to take the amount out as a loan all at once. What this does is create a line of credit that you are able to draw against whenever the need arises.

The benefit of utilizing home equity loans is that you only pay interest on the portion of the equity line of credit that you have actually used. Many people take this approach when they borrow to do home improvements. Rather than taking out the whole $100,000 up front for improvements and being charged interest right away, many homeowners only pay for improvements as they are completed.

Other homeowners use a HELOC equity loan when they need to purchase a big ticket item such as a car or if they need to cover some type of emergency. This provides people with the flexibility that credit cards offer, but at a much lower interest rate because the loan is secured against the home.

Most lenders provide easy ways for homeowners to be able to use their home equity line of credit. Most provide a set of checks that can be used just like the checks attached to your checking account. Nowadays, many lenders also provide a debit card so their customers can easily access the funds.

Not only do homeowners get to enjoy they benefits of flexibility, convenience and lower loan rates through these equity loan arrangements, but another plus is that they get to deduct the interest as well. This extra tax savings prompts many homeowners to only borrow money through a home equity line of credit so they can take the extra deduction as well.