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Home Equity Loans Versus Lines of Credit

With both types of home equity borrowing, you're pledging your house as collateral. Both also offer potentially tax-deductible interest (up to a loan amount of $100,000).

You need to be able to itemize to deduct the interest, and you could lose this deduction if you're subject to the Alternative Minimum Tax, a nasty parallel tax system that affected about four million taxpayers in 2004. (Under the AMT, only home equity borrowing that's used to fund home improvements is considered deductible.)

Another important point is that you shouldn't have to pay much, if anything, to get a home equity loan or line of credit. The lending business has become so competitive that most lenders waive appraisal fees and other ...