Line of Credit

A Line of Credit is a variable rate loan where you have instant access to the equity in your home for things like renovations, investments, a holiday around Australia or purchasing a new car. Rates on personal loans or car loans are usually significantly higher than home loan interest rates, so the benefit of this is that you are effectively borrowing at home loan rates.

Having a Line of Credit is similar to having an oversized credit card with your home being used as security. The main disadvantage of a Line of Credit is that you have to be disciplined enough to continue to make principal repayments, as you can always draw the loan back up to the original limit. If you use the equity you have built up in your home to fund other purchases it is likely to take a lot longer to own your home. However, if you are using the money for investments such as another property or shares, which earn a good return, you are likely to increase your net wealth.