Benefits Of Equity Line Of Credit
If you own a home and have been making your mortgage payments regularly, you must have built equity on your home. Of course, the longer you make the mortgage payments, the more equity is built on the property. People who need money can look towards something known as equity line of credit. This money can be used for a variety of things like home improvement, paying for college tuition, or even investing in a business venture.
There are many benefits of equity line of credit. For instance, when you borrow money for making home improvements or for starting a new venture, you may not know the exact amount required. Hence, you could end up borrowing more or less. When you borrow more, you would have to pay interest on the amount even if you do not use it. On the other hand, equity line of credit is flexible and gives you access to the amount that is approved. So, for any payments, you can write a check.
With an equity line of credit, you can borrow any time based on the equity and you just pay interest on the money used and not on what is approved.
Usually when it comes to the rate of interest for equity credit, the interest rate is variable and is dependent on the prime interest rate. So, when the prime interest rate reduces, even the interest rate that you pay will reduce. On the other hand, if the interest rate increases, the interest rate levied on you will also increase. However, there is a limit to the increase and it will not go beyond that.
When you take an equity line of credit, you do not have any tax implications unlike other loan. However, you can save taxes by deducting the interest.
The benefits of home equity line of credit can be listed as follows:
- Flexible cash flow
- Variable interest rate allows borrowers to take money when the interest rates are low
- The principal amount is not viewed as income, while the interest payments can be deducted from the taxes
- The Truth in Lending Act ensures that the lender sticks to the terms of the agreement and protects the borrower.
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