Tap Your Home's Equity

If credit card payments are eating up your disposable income each month, or if you need cash to remodel your kitchen--or to buy a new car--a home equity loan or home equity line of credit (HELOC) might be your best bet.

These loans let you borrow money using the equity in your home as collateral. Unlike almost any other consumer loan type, the interest on a home equity loan or HELOC of 0,000 or less is likely to be tax-deductible (,000 if married filing separately).

With a home equity loan, you borrow a lump sum of money repayable over a fixed term, usually five to 15 years, giving you the security of a locked-in rate and a consistent monthly payment.

A HELOC is much like a credit card or any other type of open-ended credit. You can borrow money as needed, up to the credit limit your lender assigns, using a special checkbook or credit card, or by making a transfer into your checking account. A HELOC is usually a variable-rate loan, so your monthly payments will change based on your outstanding balance and fluctuations in the prime rate.

Home equity products do have closing costs, but they're generally far lower than for first mortgages, and lenders sometimes will waive the costs or roll them into the amount borrowed. With a HELOC, once you establish your line of credit you can borrow multiple times with no additional closing costs.