Function

• You are approved for a set credit limit. You can pull out money anytime for any amount up to the limit. You are paying interest only for a set amount of time that will be listed in your loan documents. You can pay additional principal on most HELOCs.
  
  

Benefits

• You use only what you need, when you need it. If you have an emergency, you can pull out money without having to wait for loan approval.
  
  

Rates

• Interest rates are usually variable rates based on prime. Some HELOCs offer the choice to freeze interest rates for specific purchases or amounts. You can talk to your bank to see if you can convert your adjustable rate HELOC into a set rate.
  
  

Disadvantages

• If interest rates go up, so will the amount you owe every month. It can be hard to budget as the amount due will fluctuate.
  
  

IRS

• You may be able to write off the interest paid on your HELOC if you used the money towards your home. Ask your tax preparer if you are able to write off the interest and points for your HELOC.