7 Prominent Benefits of a Home Equity Line Of Credit
Let’s say you need money to pay an existing debt that can attract a huge interest rate if you miss paying for it. Or maybe you could need a small amount of money to carry out home improvement projects or buy something you really need at that moment.
Your home equity can offer you a solution. A lender can offer a home equity line of credit – commonly referred to as HELOC – if you have more than 20% home equity and a good credit score. If you’d like to know the benefits of this loan type, read this article to know why you should consider this type of loan.
1. Low-interest rates than most personal loans
When looking for a loan, you probably need to prioritise lenders offering low-interest rates. Fortunately, most of the HELOC lenders in the market offer low-interest rates compared to home equity loans and personal loans. However, you need a good credit score to qualify for these low-interest rates.
2. Most provide flexible repayment options
Compared to most loan types, HELOCs offer borrowers flexible repayment options. This will depend on how much money you intend to borrow and the lender you choose. When you apply for this loan, you get a draw period lasting 30 years. So, you must pay small interest-only payments during the specified draw period.
3. They are tax-deductible
If you use the funds you borrow to build, buy, or improve your home; it makes the loan tax deductible. For many borrowers, this is one of the HELOC benefits you’d like to take advantage of because you can subtract this amount from the tax you owe. On the other hand, the deduction only applies up to a particular threshold.
4. They don’t have many restrictions on usage
Some lenders typically restrict how you can use the money you borrow. For HELOCs, you don’t have to use the money on home improvements only. The lender allows you to use it to consolidate high-interest debt, pay for your education, start a business, or even pay for a vacation.
5. They raise your credit score
Some loans don’t show up on your credit report. That way, raising your credit score with such a loan can be challenging. With a HELOC, you’d be glad to know that if you pay the loan in time, it can affect your credit score. You can also use it to improve your credit history, which in turn helps you access low-interest-rate loans.
6. They attract low fees
The other benefit of this type of loan is that the fees incurred on closing costs and cash withdrawals are low. Some lenders don’t usually include these fees – especially closing costs, while others do. Ensure that you check with the institution to get more information on this.
7. You only borrow what you need
Unlike home equity loans, HELOC requires you to borrow the amount you need. Further, you don’t need to use the whole amount at once; hence, this makes this loan type flexible, and you end up paying a small amount every month.