Need to repair your roof or update your kitchen? In many cases, a HELOC can help you borrow money at a lower interest rate than a credit card or unsecured loan.

New Jersey Business News explains:

“The closing costs for a home equity product are often substantially less than those associated with a first mortgage, giving it an advantage over a cash-out refinancing. Nationwide, the average origination and title fees on a $200,000 mortgage in 2009 totaled $2,732, according to Bankrate’s annual survey of mortgage closing costs…

If you have the room in your household budget for this additional loan payment, the HELOC or home equity loan saves money by funding the projects over a shorter time span than a cash-out first mortgage.”

The downside of a HELOC is that it is backed by your house. If you can’t make your payments for any reason, you could end up losing the roof over your head when the lender forecloses. So, make sure you have a plan in place for paying back the home equity loan and be aware of any balloon payments that will be due.

On the positive side, your HELOC interest may be tax deductible if the loan is used to improve your home. That can add up to significant savings especially when combined with a competitive rate.

See Also:

HELOC Tax Deductions

Tags | Heloc, home equity line of credit