A home equity line of credit means a homeowner can use his home as collateral for a loan. In other words, your home can be a source of credit to pay for education, purchase of a car, retirement plans or improvement of home. The bank or the institution will provide you the detailed information as to how you can make use of HELOC.
HELOCS are Secured Loans and the interest may be lower than your expect. So you will have the capability of paying off high interest credit cards or taking up larger projects. One of the major benefits of availing of a HELOC is that the value of your home increases, once you have made home improvements by using the loan. One more benefit is that the borrowers can avail of tax credits on the interest paid.
But, there are some drawbacks in “Home Equity Line of Credit”. The monthly payments you make will entirely depend on the interest rate and the credit amount you have availed of. You should pay off the loan when the time limit comes to an end. The lender may let you renew the line of credit or extend the period of payment.
Interest rates are subject to change now and then. You will have to pay more when the interest rates go up.
Your bank will give you a check book by which you can draw against your line of credit. You can use it whenever you want to spend money for a car, a vacation or anything you consider buying. But you should take care when you use equity lines of credit as your home is on the line. If you spend money carelessly, you may have to lose your valuable home