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The Curious Bag
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A home equity line of credit allows borrowers to use their home as collateral for a line of credit. The interest rate tied to that loan determines the overall cost of the loan to the borrower.
Significance
The interest rate on a loan is the monthly fee charged by the lender to the borrower for the use of the funds.
Function
The interest rate is part of the lender's profit from the loan itself. The interest rate charged is based upon a number of factors, including the borrower's credit score.
Types
A home equity line of credit can have a fixed rate or variable rate, also known as an adjustable interest rate.
Considerations
Many borrowers use their home equity line of credit as opposed to a credit card because the interest charged is tax deductible, unlike that of a credit card.
Benefits
A home equity line of credit can be charged up to the limit, paid in full and then charged again, similar to a credit card. The interest rate does not change based upon the balance.
Source:
FederalReserve.gov: What You Should Know About Home Equity LInes of Credit
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