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HELOC: Your Cash Reserve On Steroids

A HELOC is a home equity line of credit that taps the equity in your home for your use when you want it. Like a credit card, a HELOC gives to you an important and powerful borrowing instrument, but better. Think of a HELOC as a credit card on steroids, a proven and strong way for you to access funds when and where you need them.

Like a credit card, a HELOC allows for you to make purchases on desired items and repay that loan over time. However, a HELOC is much more powerful than even the best credit card and it has been called a cash reserve on steroids by some. Read on for some comparisons of a HELOC versus a credit card.

Bigger Line of Credit: Certainly, some credit card providers will give to you a large line of credit perhaps as much as ten or twenty thousand dollars. However, a credit card is an unsecured loan while a HELOC is secured by the home. Thus, a HELOC lender would be much more likely to lend you a larger sum of money, $50,000 or $100,000 or more. It all depends on the amount of equity present in your home.

Lower Interest Rate: Yes, a low interest rate credit card is possible and an introductory rate as low as zero percent interest is certainly attainable. With a HELOC you will pay in the neighborhood of the prime rate and your rate will likely fluctuate, but unlike a credit card a cap on your interest can be put in place. Later, you can convert a HELOC to a fixed, low interest rate home equity loan for the term of your loan. Not so with a credit card.

Tax Deductible: Credit card interest charges used to be tax deductible but they no longer are. On the other hand your HELOC payments are giving you one more powerful reason to consider a HELOC.

So, how can you compare a credit card with a HELOC? Let's say you need to purchase something that will cost you $20,000. Assuming that you have that large of a credit line on your credit card you could end up paying the industry average of 15.4% on the funds for ten years. With interest and by making aggressive payments of about $327 per month your loan plus interest could cost bring the tally up to $39,311. On the other hand, if you borrow the same amount from your HELOC you will repay $242 per month and your loan with interest will be $29,119 a savings of more than ten thousand dollars before tax exclusions!

Clearly, a HELOC beat even the best credit card offer available to you.