A line of credit, or LOC, works more like a credit card because it has a revolving balance. A LOC allows you to borrow up to a certain amount for the life of the loan – the maximum term is usually 25 years. During that time, you can withdraw money as you need it. As you pay off the principal, you can use the credit again, like a credit card.
Example:
Let's say you have a $30,000 line of credit. You borrow $25,000 for a new kitchen. At that point, you owe $25,000 and you have $5,000 remaining in your line of credit, meaning you could borrow another $5,000.
Instead of borrowing more from the line of credit, you pay back $5,000. At this point you owe $20,000 and have $10,000 in available credit.
The interest only term for a LOC is usually 25 years with no requirement to pay the principal until the end of the term.
A line of credit has a variable interest rate that fluctuates over the life of the loan. Payments vary depending on the interest rate and the amount owed. Minimum monthly repayments cover only the interest, although you can elect to pay principal at any time.
A line of credit can also be used for investment purposes such as purchasing an investment property, managed funds or shares.
You can apply for a line of credit in addition to your existing home loan. When you have enough equity in your property it can be used as security for a line of credit. For more details on borrowing against equity Click Here
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