A home equity line of credit is a loan that uses your home as collateral. It is a type of revolving credit. The payments and interest rates change. The loan repayment is divided up into two periods, a draw period and a repayment period. Like other loans, a payment is made each month. However, the amount of the payment depends upon the balance which is still owed. As the home owner makes monthly payments, they are applied to the principal which makes the credit that is available increase each month.The initial line of credit is determined by the equity your home has built up. As you have made payments on the original mortgage more of the house becomes paid for. The portion that is already paid becomes the equity. For instance, if your home is worth $75,000 and $50,000 is still owed on the house the equity is $25,000. Another way to figure equity is to have the house appraised. If it is worth $150,000 and you only owe $75,000 then there is $75,000 equity. The house then becomes the collateral for the loan.There are some advantages for obtaining a home equity loan. For one, you will want to make sure the interest rates on a home equity line of credit are less than the going interest rates. This can save money overall and could even save on your taxes depending on current tax laws.One advantage is the saving of money as the interest rates are lower than common interest rates. The loans are usually much lower than those charged by credit cards. Other non-secured debts have much higher rates as well.Another advantage of a home equity line of credit is that you can usually deduct the interest paid from your taxes. Interest rates charged on credit cards or other types of loans is usually not considered a tax deduction. You will need to check the current tax laws to see how much if any are deductible. If the line of credit is more than the worth of your home it will probably not be a tax deduction.A home equity line of credit can be used for anything including, but not limited to home improvements. There are no limitations set which dictate what the money must be spent on. It can be used for anything the home owner may feel is necessary.
