We have all heard about the usefulness of home loans and loans against property in today’s world. While one helps you fulfil your dream of owning a beautiful house to call your own, the other lets you bank on your property to arrange capital for meeting other requirements. This latter type of credit is where the home equity line of credit facility comes into play as another viable option.
Haven’t heard about home equity line of credit? Well, also abbreviated as HELOC, a home equity line of credit is a type of loan that enables lenders to leverage the current market value of their home for borrowing requisite capital. It is different from a home equity loan, which gives you a lump sum amount dictated by a fixed interest rate. Thanks to HELOC, you can avail funds as and when you need them. Of course, this amount is restricted to a certain number. Ultimately, with HELOC, the interest is calculated only on the used loan amount. Think of it as a credit card linked to the value of your home equity.
The best way to understand home equity line of credit is to carefully go through the various benefits of HELOC. By analysing these advantages, you will be able to better discover how exactly HELOC works in India and how it can help you meet your financial goals.
A HELOC gives you the flexibility to use the funds for various purposes, such as home improvement, education, medical expenses, debt consolidation, business expansion, or any other personal or professional need. You can also choose to repay the principal amount at your convenience as long as you pay the monthly interest charges.
A HELOC usually has a lower interest rate than other types of loans, such as personal loans or credit cards. This is because a HELOC is secured by your home, which reduces the risk for the lender. The interest rate may vary depending on the market conditions and your credit score, but it is generally cheaper than unsecured loans.
Of course, one of the key benefits of HELOC is that it may also offer tax benefits under certain conditions. According to the Income Tax Act, 1961, you can claim a deduction of up to INR 2 lakh per annum on the interest paid on a HELOC if you use the funds for buying or constructing a new residential property. Another Section 80C deduction available to HELOC users is a maximum amount of INR 1.5 lakh per annum on the principal repayment. This is applicable only if you use the funds for home improvement or renovation.
A home equity line of credit (HELOC) is also easier to get approved than other types of loans, as it requires minimal documentation and verification. You just need to have a good credit history, a steady income source, and sufficient equity in your home. The lender will appraise the value of your home and determine your eligibility and loan limit based on that.
Last but not the least, a HELOC does not have any prepayment penalty or charges, which means you can pay off your loan before the tenure ends without any extra cost. This can help you save on interest and reduce your debt burden faster.
Already, the use of HELOC has steadily risen globally, and is a key part of the global home equity lending market. According to Technavio, the global home equity lending market is expected to grow by $35.5 billion between 2022 and 2027. This makes it a great time for you to give in to the trend and explore the advantages of HELOC for meeting your future and emergency financial requirements as well as goals.
Overall, a home equity line of credit (HELOC) is a smart way to leverage the value of your home and access funds for your various needs. However, before applying for a HELOC, you should consider your repayment capacity and financial situation carefully, as defaulting on a HELOC can put your home at risk of foreclosure. You should also compare different lenders and their terms and conditions to find the best deal for yourself.
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