When an individual borrows money using the equity in their home as collateral, the transaction is known as a home equity loan. Many wonder about the differences between home equity loans and home equity lines of credit. Although both use the homes equity as collateral for the loan, the difference is that a home equity line of credit is an open end loan that is similar to a credit card in that it can be used more than once as the principal balance is reduced by payments. Home equity loans, on the other hand, involve the applicant receiving one lump sum amount without the ability to borrow additional funds.
There are a number of benefits to obtaining a home equity loan, including the possibility of increasing a homeowners tax deduction. Many individuals request a home equity loan in order to pay off their credit card bills. This method, however, is open to debate among financial experts as to whether or not the choice is a good one. The reason is because credit cards are unsecured in that there is no collateral securing the loan, which means they can often be settled for a lower balance if financial hardships arise in the future. If you use your homes equity for the...
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