The Home Equity Line of Credit

If you have equity built up in your home consider applying for a home equity line of credit. Home equity, which is the difference between the market value of your home and the outstanding balance of your mortgage can be used as an asset to secure lines of credit. Is it a good idea to use the equity in your home to secure a loan?

The good points of using your home equity for a loan are:

1. Because it is a secured loan interest rates are lower than other forms of consumer credit
2. The interest paid on a home equity line of credit is tax deductible.
3. No repayment obligation exists until funds from the home equity line of credit have been accessed.

The drawback of using the equity of your home to secure a home equity line of credit or a second mortgage is that if you can't repay the loan you will be forced to sell your home to pay the debt. In some areas where home values have dropped you could find yourself owing more then the home is worth. If you wind up in this situation the home will be sold and the original home lender will be paid off but the remaining balance of your home equity loan will still be owed by you.