Planning for a Bright, Financial Future

The primary advantage of owning a home versus renting the same home is that some portion of the payment that is made each month pays down the principal amount of the owner's mortgage and becomes equity for the owner. By definition this, equity is the amount of ownership value in excess of the outstanding mortgage. While this equity is an asset, it is hard for the owner to use this value for their benefit. In order to solve this difficulty, the Home Equity Line of Credit (HELOC) product was created.

Home equity lines of credit allow a homeowner to borrow money against the equity in their home for whatever they may need. Having this ability to borrow using this equity presents the homeowner with several advantages over traditional loans.

1. Flexibility - By being offered as a line of credit, the owner is able to borrow only what they need, pay it back down, and then use it again. This is different from regular consumer loans which require distribution of all loan proceeds immediately and do not allow for re-advance as the loan is paid down. The primary benefits of this are not paying interest on non-advanced funds and the constant availability of additional funds as needed.
2. Unrestricted use - with a traditional loan, banks will require a defined intended use of the proceed funds in order to appropriately monitor the risk to their interest in the loan. Because the bank has established an appraised value for the home securing a HELOC and have limited the line to a percentage of this value, they have a strong collateral position and are not as concerned about proceeds usage. For this reason, most banks will allow the borrower complete freedom to use the proceeds for whatever use they choose, whether it be investment in a business, debt reduction, or whatever.
3. Tax Benefits -  Unlike traditional loans which do not offer any tax benefits, HELOCs allow an opportunity for some tax relief as certain uses of line proceeds allow interest paid on the line to be tax deductible. While there are restrictions on these uses, for the most part these deductions are available to homeowners. 

The home equity line of credit has quickly become one of the most popular forms of consumer credit. By allowing owners to benefit from their ownership interest in their homes, the HELOC provides a great product that is convenient, economical, and simple.