Your home equity is the difference between what you owe on your mortgage (and on any other home loans) and the market value of your home. You build equity as that difference grows —when you repay mortgage principal to decrease the amount you owe, or when your home’s value increases.

You can borrow against that equity when you need cash, using either a home equity loan or a line of credit. Both offer a number of advantages over other types of financing, including:

• Interest savings. Home equity loans and lines typically have much lower interest rates than other types of financing, such as credit cards and personal loans.
• Tax benefits. Just like your first mortgage, the interest you pay on a home equity loan or line is usually tax-deductible. Consult your tax advisor about the deductibility of interest.
If you’re making a major purchase, home equity financing may be a more practical way to pay for it than using cash, credit cards, or other types of financing. Consider a home equity loan or line of credit for:
• Improving your home. Not only can improving your home make it more appealing for you to live in, but it may make it more valuable as well. The increased value of your home after renovation may be enough to offset the cost of the project.
• A second home. If you’re in the market for a vacation or investment home, the equity in your current home can be a good source of down payment and closing funds for your purchase.
• Education. A home equity line of credit gives you the flexibility to pay for tuition, room and board, books, and all the other costs of putting your kids through school.
• Big events. Life is full of big events with big price tags. Whether you’re looking forward to a wedding, a new baby, or a family trip to Hawaii, home equity financing can make paying for them easier.

If you are overextended with credit and living month-to-month, debt consolidation might make your payments more manageable.

By using a home equity loan to pay off multiple credit accounts, you can take advantage of three valuable benefits:

• Simplicity. Instead of a steady stream of bills in the mail — each with a different payment amount and due-date — you receive a single statement each month.
• Lower payments. Because they are secured by your home, home loans generally carry lower rates than most other types of credit. That means you’ll have lower monthly payments and a chance to put money into savings.
• Improving credit. Simplifying your debt situation and reducing your monthly obligations can make it easier to keep up with payments. A solid payment record on your home equity account is a great way to give your credit a boost.

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