Line of Credit Home Loans

What Are the Benefits of a Line of Credit Home Loan?

A line of credit home loan provides access not only to any extra repayments you have made, but all equity available in your home. The cash is usually accessed quickly and easily via ATM card or a linked cheque account.

When used for investments, line of credit home loans have the advantage of being secured against an asset of much less variable value than the shares themselves (as in a margin loan), saving borrowers from the stress and potential losses of a margin call. When used to purchase items which would normally require a personal loan, a line of credit home loan makes the cash available at a lower interest rate than a secured or unsecured personal loan.

Line of credit home loans generally have an offset facility built in, which can help offset their generally higher interest rates.

Remember though, that the credit you use from your home equity must be paid back, so it should only be used for income-generating activities with a certain risk profile.

• Easy access to extra funds: If you are set up to use the equity in your home for income-generating activities, a line of credit is much easier to access than other loan types
• Cheaper than margin loans or personal loans: Because the credit is secured against your property and you are paying interest at the standard mortgage rate, lines of credit are also cheaper than other methods of financing investments.
• No margin calls: You retain a greater degree of control over your share investments when using a line of credit loan to replace a margin loan. Margin calls cannot be made by the bank on a line of credit.
• Offset facility: An offset facility is usually built into line of credit loans, which helps reduce your interest payable by depositing your salary/wage into the mortgage account and effectively reducing your debt for whatever period of time it remains in there.
• No offset fees: In a line of credit loan, the fees which are often charged in standard variable loans for additional repayments or redraws are non-existent. The higher interest rate takes care of these, and allows you greater fluidity in your balance.
• Access to cheap credit: If you have a family emergency, a line of credit home loan will allow you to deal with it quickly, easily, and at a much lower interest rate than a credit card offers. However, borrowers should use this facility judiciously.