What Is HELOC?
A Home Equity Line of Credit gives you access to cash using the equity in your home. Equity is defined as the home’s value minus loans against it. For example, if you own a home valued at $300,000 and your mortgage is $200,000, then you have $100,000 in equity.
If your first mortgage interest rate is low then you may not want a cash out refinance. In these cases, an equity line might be the better solution. You may be able to obtain a low rate of interest that is secured by your home. This will allow you to pay off credit card debt and potentially have tax deductible interest, depending on your circumstances. This might be better than paying 15% to 30% in credit card interest.
- Equity secured loans carry lower interest rates.
- Ability to consolidate into one monthly payment.
- Flexibility to utilize credit line as needed over time.
- Interest may be tax deductible.
- Must have Significant equity in your home to qualify.
- Lenthy and cumbersome application process.
- Puts your home at risk.
- High closing costs and possible pre-payment penalties.