Re-Financing with a Line of Credit Loan

You can also get money using a credit line for paying for home improvements and much more! Lower your payments with home equity refinancing. A few householders might consider re-financing with a house equity line of credit as opposed to a traditional loan. There are definite advantages and disadvantages to these types of situations. The key to understanding whether or not re-financing with a house equity line of credit is worthwhile involves understanding what a home equity line of credit is, how it differs from a home loan and how it may be used. This article will briefly cover each of these topics to give the householder a few useful information which may aid them decide whether or not a house equity line of credit is ideal in their re-financing situation.

What is a house Equity Line of Credit?

A house equity line of credit, sometimes called a HELOC, is essentially a loan in which funds are made available to the householder based on the existing equity in the house. However, in this case, it’s not really a loan but rather a line of credit. This means a certain amount of money is made available to the householder and the householder may draw on this line of credit as funds are required. There’s a specified period in which the householder is able to make these withdrawals. This is called the draw period. Additionally there’s a repayment period in which the householder must refund all of the funds they withdrew from the account during the draw period.

How Does a Home Equity Line of Credit Differ from a Home Equity Loan?

The difference between a house equity line of credit and a home equity loan is actually quite simple. While both loans are secured based on the existing equity in the house, the manner in which the funds are disbursed to the householder is rather quite different. In a home equity loan the householder is given all of the funds immediately. However in a home equity line of credit the funds are made available to the householder but are not immediately disbursed. The householder is able to draw against this line of credit as he sees fit. There are limits to the amount which may be withdrawn and there’s also a limit on when funds may be withdrawn. A home equity has a draw period and a refund period. Funds may be withdrawn during the draw period but must be repaid during the repayment period.

How may a Home Equity Line of Credit Be Used?

One of the biggest advantages of a home equity line of credit is that the funds may be used for any purpose specified by the householder. While other loans such as an auto loan or even a traditional mortgage might have strict limitations on how the money lent to the householder may be used, there are no such limitations on a home equity line of credit. Common uses of a home equity line of credit include the following:

* Home renovations or improvement projects
* Opening a small business
* Taking a dream vacation
* Pursuing higher educational goals
* Opening a small business

In some cases the interest paid on a home equity line of credit may be considered tax deductible. This may apply in situations where the funds are used to make repairs or improvements to the house. However, these expenses are not always tax deductible and the householder should consult with a tax professional before making decisions regarding which interest payments can be deducted.