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Whether you’re looking to move quickly to capitalise on property investment opportunities or drive down your home loan, a line of credit can be a powerful tool – but it is not without risk.
How does it work?
A line of credit is an interest-only home loan that can offer borrowers instant access to any repayments made to the principal sum.
Borrowers can choose how much or how little of their loan they repay each month – as long as the monthly interest repayments are met.
Who is it for?
A line of credit is essentially for investors and borrowers who aim for aggressive mortgage reduction.
Investors favour this flexible product because they can quickly redraw money up to the original agreed loan amount without making a new application to the lender.
Used with self-discipline, it is also possible to take years off the life of your loan, but be warned: it can also add years to your repayments if you dip into the loan too regularly.
Borrowers may pay their full salary directly into their loan each month to drive down the principal, using a credit card with an interest free period that is linked to the account to pay for monthly living expenses.
At the end of the month, the required amount can be withdrawn from the loan to pay off the credit card and the cycle begins again. But if you don’t repay more than you would with a principal and interest loan you’ll end up multiplying – not cutting – the amount you end up repaying.
The interest rate on a line of credit is also generally higher than a standard variable rate loan as you’re paying for a lot of features. So make sure that you use the features available, otherwise it’s worth considering a different type of mortgage. Please give us a call to determine whether a line of credit mortgage is right for you.
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