About line of credit home loans
A line of credit home loan allows you to borrow money up to a specified limit, repay that amount and then borrow up to the limit again numerous times.
Such a mortgage operates similar to a credit card – you draw down as much as you need and then pay it back.
There are two options to choose from:
Principal and interest line of credit
A P&I loan has a reducing balance, meaning every dollar goes towards paying down your home loan sooner, saving you years of payments on your loan and thousands of dollars in interest.
The benefit of this option is that you avoid the common trap with a Line of Credit where you don’t pay down the principal and find yourself still owing the full loan amount 10 years into the home loan.
Interest-only line of credit
where the home loan credit limit remains constant for the 10-year interest only period on this fully transactional line of credit.
The benefit of this option is that you can use the equity in your home for an investment property, shares or other personal uses.
Compare our split home loan interest rates and product features below.
You only pay interest on the amount of money you actually borrow, not on the full available balance
Once the line of credit has been established, you are able to access the funds when required without delay
Once the borrowed amount has been repaid, you have access to the full line of credit amount again
A line of credit comes in handy during times of sporadic cash flow or for short term finance needs
Interest-only repayments on a line of credit can result in your still owing the full amount, as principal remains unpaid
A secured line of credit means that your home acts as collateral and - if unpaid - the full amount is added to your mortgage
How can credit loans give me financial flexibility?
A credit loan, or a line of credit, is a personal or home loan that can help you access money when you need it. It is an approved amount you are eligible to use to help with purchases, debts or anything else you may need in a hurry. Banks or lenders can approve a line of credit up to a certain amount, what’s called a credit limit. You are usually only charged interest on what you spend, which is a big advantage, and the interest rates are generally lower than those you may be charged by having a credit card. However, not everyone is eligible. Most lenders will have strict rules and regulations about approving a line of credit. You can have a line of credit as a revolving, regular option, or for a fixed term. The importance here is to remember not to overspend, and be aware of any fees, charges or penalties that accompany the loan.
Can credit home loans help me as well?
Line of credit mortgages are also what they sound like they will be. They allow you to borrow money, again up to an agreed limit, pay it back and then borrow up to that limit again, as many times as you need. You don’t have to wait until you have reached the limit to pay it back, and paying it back before then is always a god idea if you want to limit the amount of interest you are charged – just like a credit card. When it comes to line of credit mortgages, there are usually two kinds – principal and interest, and interest only. A principal and interest loan means your repayments pay down both the principal amount and the interest, saving potentially thousands on interest. An interest only line of credit means you only pay the interest, and the limit remains constant for 10 years. However, this can be a good way to invest in property.
What are the other benefits?
There can be a few other benefits to choosing line of credit mortgages. The main two are flexibility and accessibility. Lines of credit mortgages can be easier to obtain than other types of mortgages, and the funds can also be withdrawn with little fuss, often the same way as your regular bank or savings accounts. This means you can have access to the money through services such as online banking and even a regular debit card. Another benefit is the ability to make extra payments without attracting a fee. This can save you on interest, and you may even be able to save more on interest by using an offset account, allowing you to continue to access your money, and reducing the overall size of the mortgage at any given time.
Why is loan engagement important?
Loan care is also important coming the other way. All mortgages, especially line of credit mortgages, benefit when engagement is coming from both sides. This means being aware of what you are paying, why you are paying it, and whether there is a way to do it better. At Mortgage House, we know that not everyone understands the intricacies of mortgages and the home loan market. That is what we are here for. We use our experience to do the loan engagement for you, and with you. We can give you the latest information, all the updates and make sure your existing home loan is as healthy as it can be. And we will also help you do all those extra things you might want to do, such as invest, renovate or upgrade.
Can I use my equity?
You can use your equity in your current home to give you a line of credit, which can be a great way to free up a bit of cash. Equity is the difference between how much you owe on your mortgage, and how much your house is worth. Most lenders will allow you to borrow up to about 80% of the equity in your home. The value of equity is usually seen when you sell your house. It will basically be the profit that you end up after the sale, and after you have paid off your mortgage. However, using your equity as a line of credit allows you to use that value now, for whatever you need it for. You can use it as an interest only loan to invest in another property, or if you urgently need a new car, for example. You can also use it to renovate or take that dream trip you always wanted to.
What is the difference between mortgage and line of credit?
A mortgage is a way of borrowing a fixed loan amount you can use to buy an investment property, a commercial property or a home to live in. It has its own terms and conditions, its own interest rate and you make regular repayments agreed to at the beginning. You are charged interest on the full amount of the loan, and with the repayments you either only pay interest, or interest and principle amounts.
With a mortgage line of credit, while you do have a maximum amount, you don’t have to borrow it all at once. That means you won’t be charged interest on the full amount, only the amount you have borrowed at that time. One of the important things to remember about a mortgage line of credit is that you can keep borrowing up to the agreed credit limit, make repayments and still borrow. As mentioned above, you can use the equity in your home as a mortgage line of credit.
A mortgage line of credit can also have a higher interest rate than regular home loans, given the higher risk carried by banks and lenders.
Can I use a line of credit loan as a down payment?
Using a mortgage line of credit loan as a down payment is possible, but it is important to understand there may be risks involved. Borrowing money of any kind comes with risks and borrowing money for an investment can involve an extra layer of risk. That’s why it is important to speak with your financial advisor about the range of credit products on offer and discuss whether being conservative is a good idea. Make sure you take a close look at the equity in your home and how much of it you are willing to use, whether it’s for an investment property or another kind of investment. An investment property can be a good way to increase your property portfolio, improve your credit rating and secure your financial future. However, you may wish to use a mortgage line of credit on down payments for things such as renovations, a new car or investing on the stock market.
Can I convert my line of credit loan to a mortgage?
Giving any line of credit a health check from time to time can be beneficial. Refinancing may bring you additional benefits, such as a better interest rate, improved terms and conditions or smaller repayments. Converting a mortgage line of credit to a regular mortgage can be one of these options. Speak with Mortgage House’s lenders to discover whether there are more suitable credit products available for you and your family.
Is it better to refinance or get a home equity line of credit?
Everyone’s financial situation is different, and whether you’re looking for a mortgage line of credit, a regular mortgage or any other credit product, working closely with your bank or lender is important. That is something we are proud of at Mortgage House. We don’t treat you as a number. We work with you to understand everything we can, from your property goals to your income and expenses, from your credit rating to your family plans. Speak with your financial advisors and use our expert lenders to help you understand the pros and cons of each product. One thing to remember is that a mortgage line of credit needs to be something to keep an eye on. While it can be extremely beneficial and flexible, if you are not financially savvy it may be hard to manage. But if you are prepared to take the time and effort, a mortgage line of credit can have a lot of advantages for you and your family.