Line of Credit  

Make every cent count towards your home loan with the flexibility of a line of credit

What is a line of credit?

A line of credit is often chosen by borrowers to offset interest while having easy access to funds and cash flow management in an 'all in one' account.

How does it work?

Typically your salary is paid directly into the line of credit loan each month, driving the principal sum down. You then meet your monthly living expenses with a credit card that's linked to the loan account with an interest-free period. At the end of the month, the credit card balance is repaid from your line of credit.

Why are they effective?

Used with discipline, it is possible to take years off the life of your loan. Interest on a home loan is typically calculated on a daily basis and so the lower the outstanding principal, the less interest that's charged.

That means for a whole month the principal loan amount will be much lower than it would ordinarily be with a traditional mortgage. As long as you consistently channel back every dollar saved into the principal amount, and do not overspend on the credit card, the savings can be substantial.

Just be aware that the interest rate on a line of credit is generally higher than a standard variable rate loan as you're paying for a lot of features. It's also important to remember that if you don't eventually drive down the principal loan amount you'll never be mortgage free.

Keep in Control

Line of credit mortgages can be a powerful tool for mortgage reduction however they should only be used if you're truly disciplined in your spending.

Keep a close track of your monthly spending and make sure you follow a tight budget. Set a monthly target for additional repayments and aim for a set number of years to make your repayments.

Make sure that you speak to your broker in establishing whether this product is best suited to your financial goals and your financial situation