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ANSWERS: 1
  • Home equity lines of credit, because of the fact that they use as collateral a home's value (equity), offer homeowners both advantages and disadvantages.

    Cash Value

    Depending on credit status, income level and existing debt load, a home equity credit line can provide cash access up to 85 percent of the home's assessed value minus the current mortgage. This is advantageous when applied toward home improvements.

    Interest Rates and Tax Advantage

    Home equity credit lines can provide a homeowner with large amounts of cash at low interest rates. Also, home equity credit lines have potential tax advantages not applicable to other kinds of loans (consult a tax adviser).

    Variable Cash Access

    Many home equity loans give you different ways to access your credit line. The credit line may offer cash access through credit cards, through checks, or through both checks and credit cards.

    Refinance-Related Risk

    Conversely, certain situations can put your home at risk in association with these credit lines. An inability to refinance, for example, can endanger your ownership status.

    Equity Loss Hazard

    Another disadvantage associated with a home equity line of credit is that these credit lines are not subject to the same kinds of regulations pertaining to foreclosure proceedings as are mortgages. This results in the risk of losing your home more easily to the lending institution should your home sustain a drop in equity.

    Source:

    "Facts for Consumers: Home Equity Credit Lines"

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