Why and when to tap into home equity

Home equity lines of credit

Advantages:

• Flexibility: A borrower can access money repeatedly and in varying amounts, as needed.
• Low maintenance cost: Once open, it operates like a credit card in terms of annual fees.
• Can carry person through tough times: After a job loss, a homeowner can still borrow from the home equity line to span the gap until the next job.
• Rates: Generally it carries a lower rate than a home equity loan, and will often have a low introductory rate for a certain period of time.

- advertisement -

Some good uses:

Home equity loans

Advantages:

• Fixed payments: A borrower knows what the monthly payments will be for the life of the loan.
• Fixed rate: Most loans carry a fixed interest rate rather than a variable rate, which is standard for home equity lines.

Some good uses:

• Debt consolidation: Eliminating higher-rate debt, such as that on multiple credit cards. Transferring the balances to a home equity loan can produce huge savings, and a borrower also avoids the temptation that a home equity line presents to keep running up balances.
• Home improvements: If a homeowner knows the exact cost, for example, of adding a room in terms of material and labor, then getting a fixed amount makes sense.

Homeowners can compare rates and lenders using Bankrate's home equity search engine.