f you need to consolidate debt, remodel your house or buy a car, consider a home equity loan. There are tax advantages, plus the interest rates are often lower! You can choose from a traditional loan or a line of credit, where you borrow only what you need. If you are thinking about a home equity line of credit you also might want to consider a more traditional second mortgage loan. This type of loan provides you with a fixed amount of money repayable over a fixed period. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time. You might consider a traditional second mortgage loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to yourhome. In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at the APR and other charges. You cannot, however, simply compare the APR for a traditional mortgage loan with the APR for a home equity line because the APRs are figured differently. The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges. The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges. Is the interest on my home equity loan deductible? In most cases the answer is yes. The interest on home equity loans or lines of credit can be tax deductible (please consult your tax planner for exact details). That's why many people choose to get a home equity loan or line of credit to finance cars, boats or other high ticket items. Interest on your credit cards or auto loans is not tax deductible. And because you're borrowing against an asset (your house), the interest rate is generally lower than other loan types. In general, the interest is deductible on a home equity loan or line of credit up to $100,000. If you are married and filing separately, interest is tax deductible on a loan or line of credit up to $50,000. Again, it's important to consult a professional tax planner for the specific tax laws that apply to you. What's the difference between a loan and a line of credit? A loan generally is for a fixed period of time with an initial balance and fixed monthly payments. A line of credit is similar to a credit card in that it only requires payments when there is an outstanding balance. Contrary to a loan, there is no initial balance on a line of credit. You are required to make a minimum payment each month based on a percentage of the balance.