Borrowing against your home requires discipline

Published On: Jul 11 2012 04:33:31 PM EDT   Updated On: Nov 01 2012 09:45:43 AM EDT

A home equity line of credit can finance everything from college tuition to cars. It can also be a useful cushion if you're not already overloaded with debt. You can set it up, but never draw on it, and have the comfort of knowing it's there if needed.

Most importantly, home equity may be the largest component of many Americans' nest egg for retirement. Over-leveraging your house for short-term pleasure may rob you of future economic security.

Discipline is key. Understand the risks and have a plan for paying back the loan. Consider these points:

·         You can tap a line of credit at will, and interest accrues only on the amount borrowed. Any amount you pay off becomes available to borrow again.

·         Consider a line of credit if the payback period is three years or less. For payback periods longer than three years, consider a home equity loan for the peace of mind of a fixed rate.

·         Home equity lines of credit have variable interest rates, so when rates increase, your overall debt will too.

·         If you already have a home equity line of credit, don't swap that for a fixed-rate home equity loan until the interest rate gap narrows significantly. Rates on lines of credit still are lower than on home equity loans.

·         Rates on lines of credit usually are lower than on a credit card, and interest on lines of credit may be deductible on up to $100,000 of home-equity debt if you itemize deductions on your tax return. Please consult your tax advisor for details.

A loan officer can help you sort out your home equity loan options.  All loans are subject to credit approval.

Information provided by Jax Federal Credit Union