• A home equity line of credit uses your home as collateral.home 3 image by Stacey Lynn Payne from Fotolia.com
  
  Home equity lines of credit are loans that allow you to borrow against the equity you have built up in your home. The loan uses the home as collateral, which means that if you fail to repay the loan, you could lose your home to foreclosure. Therefore, you should understand how the loan works before signing off on it. However, home equity lines of credit do offer some significant benefits if you need to borrow money.
  
  

Money When You Need It

• A home equity line of credit functions similarly to a credit card in that you are given a line of credit, rather than a standard loan. Since the line of credit is secured by your home, you are generally given a significantly larger line of credit than you would with an unsecured credit card. You can withdraw money against your line of credit for any purpose, making a home equity line of credit a good option for large, continuing expenses, such as higher education costs or ongoing medical treatments.
  
  

Lower Interest Charges

• A home equity line of credit has much lower interest rates than credit cards because the loan is secured by your home, which makes it much less risky for lenders. In addition, you are only charged interest on the amount of money you are currently borrowing, rather than the entire line of credit. This makes a home equity line of credit particularly advantageous over a home equity loan when used for ongoing expenses. For example, if you plan to use $20,000 per year for four years, with a home equity loan of $80,000, you would be paying interest on the entire $80,000 the whole time. If you took out a home equity loan, you would only pay interest on $20,000 the first year, $40,000 the second year and so on.
  
  

Tax Deductions

• All or a portion of the interest on your home equity line of credit may be tax deductible. You are allowed to deduct the interest on the first $50,000 if you are a single filer or the interest on the first $100,000 if you are a joint filer. If you use the proceeds of the home equity loan for home improvements, the interest is deductible at the same limits as a mortgage, which allows you to deduct the interest on the first $500,000 for single filers and the first $1 million for joint filers. You must itemize your deductions on your taxes to claim the deduction.