A line of credit (LOC) mortgage is a type of loan that allows you to use the loan as your cheque account and allows you to draw down and repay the loan as you choose.
It is similar to a credit card in that it allows you to withdraw funds at anytime up to a set limit.
You are also given a choice to make repayments on either a monthly basis or with some loans you don’t have to make a payment as long as you remain below the limit.
A line of credit can be used to purchase most types of properties, whether it be a family home or an investment property. As the borrower, you can use the line of credit to carry out renovations, pay your bills or invest in shares.
Do I still need a bank account?
Generally, if you have a Line Of Credit (LOC) then you do not need a bank account as all of your income and expenses can be run through your home loan.
For this reason, LOCs are also known as “all in one” accounts or all in one home loans. There are some dangers in using a line of credit in this way.
Read on for more information.
Which lenders can offer line of credit loans?
The interest rates and fees that can be offered for a line of credit loan will vary across all lenders, however all the major banks will offer similar features such as ATM access, cheque books and internet banking.
Some of the common LOCs are:
- CBA – MAV package line of credit residential equity / Line of credit residential equity
- Rams- Line of credit / Line of credit professional pack
- Westpac- Premier advantage equity access loan / Equity access loan
- St George- Advantage home loan package portfolio loan variable rate / Portfolio loan variable rate
- Suncorp- Money manager asset line / Asset line
- ANZ – ANZ portfolio loan equity manager / ANZ portfolio home loan / Breakfree equity manager / Equity manager / Breakfree equity manager / Professional benefits equity manager
- NAB – NAB home equity line of credit
- And many more
What are the benefits from a line of credit?
A line of credit gives the borrowers a chance to experience a sense of freedom and choice with their mortgage. If you are cautious with your money and want the flexibility a line of credit can offer, then this type of loan would be well suited to you.
key benefits you should consider when it comes to getting finance under this type of finance:
- You can withdraw up to your credit limit without having to seek approval from your lender.
- The credit limit amounts are usually quite large which mean you can make larger purchases without going over the limit.
- The interest rates are generally lower than that offered through a credit card, often at home loan rates or just a little higher.
- You will have easy access to your funds as most line of credit facilities offer cheque books, internet and phone banking, and a range of other useful transactions.
- You can consolidate your debts by transferring other debts such as a personal or car loans into your mortgage.
- You can reduce the balance and consequently save on interest by directing all of your income into your home loan account.
Is a line of credit suited for me?
In general, borrowers who cannot afford to make significant additional repayments would be worse off if they were to refinance to a line of credit. This is because a line of credit usually offers a higher interest rate which would outweigh any savings made by combining your accounts.
A mortgage through a line of credit would generally be an interest only loan without a set term for the loan to be repaid. Therefore, the borrower then has the choice on deciding when they will make payments on the principal, which would suit some borrowers and would be a disaster for others!
Usually, a line of credit is best suited to people whose income fluctuates and would be able to make additional payments. It would also benefit borrowers who have a flexible income and can afford to pay a interest rate higher than the standard variable rates.
What are the risks involved with a line of credit?
Although a line of credit gives borrowers a considerable amount of freedom, they are not for everyone.
Just like any credit card account, a line of credit would require good budgeting skills and financial discipline so that you can stay within your financial limits.
If you are the type of person who finds difficulty in managing your money, then a line of credit might not be your best option.
How do I apply for a line of credit home loan?
Please enquire online or call us on 1300 889 743 if you would like to talk with a mortgage broker who can give you expert advice on a line of credit home loan.