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The Value of a Home Equity Credit Line

A home equity credit line can help you save money when financing a car, your children’s education, or the kitchen of your dreams.

Ali Hardy Jan 8, 2019

Many homeowners experienced a boost to their home equity this past year, as the housing market tightened and home values increased. With home equity on the rise, borrowing opportunities for homeowners are better than ever. So what is the best use of your equity?

Home equity credit lines explained

A home equity credit line (HECL), also known as a home equity line of credit, allows homeowners to borrow a certain amount based on their equity for the duration of the loan term. Simply put, it is a second mortgage that allows homeowners access to cash through a revolving line of credit.

Because it is a loan secured by your home, the interest rate is often lower than with other types of debt. That can help you save money, especially if you use the loan to consolidate debts with higher interest rates.

A home equity credit line is a variable-rate loan tied to the prime rate, which is the interest rate used by banks to determine pricing for products such as loans, mortgages and credit cards. When the Federal Reserve raises rates, the prime rate increases, too. Currently the prime rate is approximately 5.5 percent, but this rate can change.

An individual’s HECL interest rate is calculated the same way as other loans. It is the prime rate, plus the margin, which is determined by credit score.

New year, new rate

Zions Bank’s home equity credit lines are currently being offered with an introductory APR of prime minus 2.03 percent for the first six months. With an introductory APR well below prime, a home equity credit line could save you money when you buy a car, pay for education or complete home improvements.

Once established, your revolving line of credit is there for just about whatever you need it for. Use your home equity credit line for:

  • Home improvements
  • Debt consolidation
  • Higher education
  • Managing cash flow
  • Vacation and travel
  • Medical bills
  • Financial emergencies

Home equity loan vs. home equity line of credit

Wondering about the difference between a HECL and a home equity loan, and why you might choose one over the other?  

A home equity loan is a one-time, lump sum payment made to the homeowner. The loan carries a fixed interest rate, allowing consumers to make payments in the same amount each month.

Consumers who take out a home equity loan are prohibited from borrowing further from their home, so these loans are generally better suited for consumers who plan to use the money for a purchase with a fixed price tag. Consider a traditional home equity loan if you have more than 20 percent equity and you’re planning a single, large project such as a new roof.

A HECL is generally better for projects that will require access to funds over time.

You may also be wondering, is home equity loan interest deductible? The short answer is: It depends. The Internal Revenue Service offered this guidance following the passage of the Tax Cuts and Jobs Act. As always, tax questions are best answered by your accountant or financial advisor.

Wondering which loan is right for you? Speak to a Zions Bank representative today by calling 800-727-8893 or visit a local Zions Bank branch.

Loans are subject to credit approval. Terms and conditions apply. See a banker for details. Equal Housing Lender. NMLS #467014.

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