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A home equity line of credit (HELOC) is a form of financing that is based on the equity that you have built up in your home. Like credit cards,
HELOC are revolving accounts - once you pay off the amount that you borrowed, you can drawdown another loan again. A HELOC provides you with flexible
financing - you can drawdown on the money that you need when you need it. A 100% equity line of credit means that you have a line of credit equal to
100% of your home's value, minus your first mortgage.
Like a home equity loan, a home equity line of credit is secured or guaranteed by a junior lien on your property. As such, HELOC's interest rates are typically lower than those of other personal loans. In addition, in most cases, the interest rates paid against a home equity line of credit is tax deductible.
One difference between a HELOC and a home equity term loan is that the interest rate is variable in the former. A home equity line of credit is good when you want to borrow against your home and you perceive interest rates can go lower. In addition, if your need for borrowed money is spread over a period of time - for example, to pay for your child's college tuition each semester, - a HELOC gives you the flexibility to borrow only the amount you need, when you need it. This way you do not have to carry the entire cost of carrying a loan. Another benefit of going with a line of credit is that the closing costs of a home equity line of credit are significantly lower than a term loan. Lastly, you get better cash flow as the minimum payment due each month is interest only.