Issue link: http://read.uberflip.com/i/843585
48 | | Summer 2017 I f you own a home, you may be familiar with the home equity line of credit (often called a HELOC). But maybe you're not sure of the difference between a HELOC and a home equity loan. Both are secured loans, which means you're putting up your home as collateral for the money you borrow. Both offer fairly low interest rates and allow for a tax deduction. And both require equity in your home. Essentially, these products are second mortgages: You're borrowing the equity in your home to use the cash. The difference is that with a home equity loan, you receive a lump sum and pay it off on a monthly basis over a set period of time, generally between fi ve and 15 years. The interest rate and monthly payment will be fi xed for the life of the loan. A HELOC is like a pot of available money that you can draw on as you need it. You'll be given a debit card or check book to access the money, and a maximum amount you can borrow, but you don't have to use it all, and you won't pay interest on the portion you don't tap. The interest rate on a HELOC is generally variable, which means your monthly payment will vary as well. Consider: powered by Home Equity Line of Credit 101 SPOTLIGHT Your credit score. If your score is low enough, you may not qualify for a loan at all. But credit scores don't weigh as heavily with home equity loans and lines of credit because you're putting up the home as collateral. Whether you have enough equity. Most lenders will loan you up to 75 percent or 80 percent of your home's current market value, minus the amount you owe on your mortgage. The cost. You'll pay less than you paid in closing costs for your mortgage, but you still may have to cough over some money for an appraisal and closing costs. The tax perk. If you itemize your taxes, you may be able to deduct the interest paid on a home equity loan or HELOC if the loan amount is limited to $100,000. It doesn't matter what you used the money for. The fi ne print. HELOCs may have a minimum withdrawal amount, requiring you borrow at least a certain amount each year. Also, the fi nancial institution has the ability to freeze or cut off your HELOC. It's just like a credit card company lowering your credit limit. Chris O'Shea is a regularly contributing writer for SavvyMoney. To get your own fi nancial checkup with Savvy Money today, visit SavvyMoney.com/aacu. A crash course in home equity loans and lines of credit