Line of credit loans are a type of credit facility, that is easiest to describe as a form of credit card, you pay interest on the debt when used. When the debt is paid there is no interest charge, however the facility is there to use when needed. You and your bank will set a pre-arranged credit limit, that allows you to use the equity you have built up in your property as you would a credit card or personal loan. Most lenders offer credit up to 80% of the property’s value. If you take out Lender’s Mortgage Insurance this amount can increase to around 90% of the property’s value. Your home acts as security for the loan.
Many institutions allow you to deposit your salary directly to the loan, and redraw it via the same methods you would use to take your pay out of a savings account.
Pros:
Many institutions allow you to deposit your salary directly to the loan, and redraw it via the same methods you would use to take your pay out of a savings account.
Pros:
- Accessible credit, with access via plastic cards, cheques, internet and phone banking available.
- Credit limits are usually higher than for credit cards, while interest rates are considerably lower
- Save on fees by using your regular pay as an offset to your home loan
- Higher interest rates than standard variable loans
- Interest-only minimum payments can be costly over the long term
- Planning and discipline is essential if you don’t want large interest bills
