Pros and Cons of Home Equity Loan and Home Equity Line of Credit

Pros and Cons of Home Equity Loan and Home Equity Line of Credit

A home equity loan (HEL) is one where the borrowers provide the equity of their residence as collateral. These give you the capability to qualify for large sums of money depending on the value of your home and your own equity.

A home equity line of credit (HELOCs) is a credit line set by the lender depending on the equity of your home. After setting the limit, you are free to draw from your line of credit during the life of your loan.

Benefits of Home Equity Loans and Home Equity Lines of Credit

One of the main advantages of home equity loans and home equity lines of credit is that the interest you have to pay is tax-deductible. Federal tax law permits borrowers to reduce mortgage interest on a maximum of $100,000 as home equity debt. Besides, the interest rates of the HELs and HELOCs are lower than the rates you pay on unsecured loans or credit cards.


The amount you borrow from HEL or HELOC is secured by providing your home as collateral. This puts the property at risk in case you fail to complete the payments on your loans. There is a possibility of foreclosure and loss of your home if you are delinquent with a home equity loan.

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