Line of credit

Line of credit (back)

Because of the extra costs, a line of credit tends to suit investors and businesses better than owner-occupiers. A line of credit is really like a giant credit card secured against your home, and not like a standard home loan. You get a limit, and so long as you pay the interest charged, you may repay as much or as little of what you borrowed as you like. You could bank all your pay into this account, like a mortgage offset.

Lines of credit:

* charge a higher rate of interest than a standard loan;
* may charge a fee to operate; and
* credit your loan with the full interest you pay.

As with mortgage offsets, the savings can be relatively small. If you are already having problems with your credit card, or if you think it will be hard for you not to dip into your line of credit for daily living or luxuries, then a line of credit will certainly not suit you. You might never fully own your home and still face a large debt when you retire.

If you can negotiate useful features without paying a higher rate of interest, they may help you. Beware however, if your line of credit facility costs you an extra 0.5 per cent in regular interest repayments, these interest costs may outweigh any savings the line of credit features might offer. For many people, a cheaper loan or making extra repayments is the better long-term solution.