For decades, homeowners across the country have reaped the benefits of a variety of home equity loans. In general, interest rates on these loans are lower than those attached to most credit cards and unsecured personal loans. At tax time, home equity borrowers often enjoy a substantial break by deducting the interest paid on their loans, up to $100,000.
Home Equity Loan Basics
There are two types of home equity loans. The most conventional (sometimes called a second mortgage) is paid in a lump sum, with a fixed interest rate and set monthly payments. The home equity line of credit or HELOC is an account from which the borrower can make withdrawals as frequently as they like, provided they dont exceed their credit limit. HELOC interest rates are usually variable, meaning your monthly payments will adjust, depending on federal rates. Loan payments are based on the amount withdrawn, not the total amount you can borrow.
Choosing Wisely
Lump-sum home equity loans are usually a good choice if you have a specific project or purchase in mind, such as renovating your bath or replacing that old clunker of a vehicle. Since HELOCs work more like credit cards,...
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