If you've been looking for a solution to help you bridge your financial gap, one of the things you may want to consider is leveraging your equity in your home for a home equity line of credit. Some homeowners dismiss the idea because of some misconceptions and confusions, but when you understand the basics, it's easy to see the advantages of this type of loan. Here's a look at what you need to know to help you make an educated decision about your financing needs.

What Exactly Is A Home Equity Line of Credit?

At its most fundamental, it's essentially a credit line that's both secured and limited by the equity you have in your home. It's usually an adjustable rate loan, and you will have a set period of time to draw funds from that available credit. At the end of that period, you won't be able to draw from it anymore, as it will be converted to a standard loan that you will have to make regular payments on. You can pay back borrowed money on the line of credit at any time, though. If you pay back borrowed money before your draw period ends, those funds will be available for you to borrow against again until the end of the borrow period.

How Much Can You Borrow?

You have to have existing equity in the house before you can qualify for a home equity line of credit. That means owing less on the mortgage than the home is worth. The bank will look at how much your home is valued at, how much you owe on your existing mortgage, and then you'll be able to borrow a set percentage of the difference between the two. For example, if your bank will lend 90 percent of the combined value and your home's value is rated at $325,000 with a mortgage balance of $200,000, you'll be able to borrow up to $112,500, or 90 percent of the $125,000 difference between the value and the existing mortgage.

What About Taxes?

Just as you can with your mortgage, you may be able to deduct any interest paid on your home equity line of credit when you file your taxes. There are specific guidelines for deduction eligibility, so make sure you check with both your lender and a tax professional first.

As you can see, a home equity line of credit isn't so complicated. Now that you understand the basics, it's easier to determine if it's right for you. Check with a local lender, such as General Electric Credit Union, today for more information.