Should I take on line of credit

If you are considering taking out an equity line of credit with your mortgage, you need to weigh your options before cashing out the equity in your home. When used wisely, a home equity line of credit can be an inexpensive way to borrow for home repairs, educational expenses, or debt consolidation. Here are several tips to help you decide if a home equity line of credit is right for you.

Home equity lines of credit are a revolving credit line similar to a credit card that is tied to the equity in your home. When you borrow against your line of credit your payments are based on what you spend. If you never spend using your line of credit, you will never have payments unless your lender charges you an annual fee.

The advantage of an equity line of credit over a credit card is that you will receive a lower interest rate on the line of credit because it is secured by your home. Unsecured lines of credit such as credit cards have significantly higher interest rates and fees. Your home equity line will come with a debit card and checks for easy access to your money. The disadvantage of this type of home equity loan is the ease of access to your equity might tempt you to make purchases that you might not otherwise make. One final advantage over credit cards is the interest you pay can be deducted from your federal income tax.

If you are in the process of applying for a new mortgage or refinancing your existing mortgage, you can add a home equity line of credit as an option from your lender. To learn more about your mortgage and home equity options, including common mistakes to avoid, register for a free mortgage guidebook.