Line of Credit Home Loans

Compare line of credit rates for May 2020

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Name	Product		Interest Rate (p.a.)	Comp Rate^ (p.a.)	Application Fee	Ongoing Fees	Max LVR	Monthly Payment	Short Description
P&N Bank Equity Access Home Loan		P&N Bank Equity Access Home Loan	4.87%		$395	$10 monthly ($120 p.a.)	90%		A home loan which gives flexible access to your equity.	Enquire now More info	Compare	loading Fetching your data...

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What is a line of credit and how can I use it?

• A line of credit, or a home equity loan, allows you to borrow money using the equity in your property.
• Equity is the value of your home minus any money you owe on it. If your home is worth $500,000 and you owe $200,000 on your mortgage, then your equity is $300,000.

You can take out a line of credit and spend it over time on anything, from home renovations to a holiday to a car, or even to fund another property purchase.

How much of my equity can I borrow?

Most lenders will lend you up to 80% of your property's value, but some will go up to 90% or even 95%.

Interest rate calculation

You only need to repay the amount you actually spend, not the total line of credit that the lender extends to you.

If you had a $120,000 line of credit and you spent $30,000 on a car, you would only pay interest on the $30,000.

How much does a line of credit home loan cost?

Here's a breakdown of the potential costs of a line of credit loan.

• Interest charges. The lender charges interest only on what you borrow.
• Upfront fees. Many lenders charge an application fee. A valuation fee is quite common too. You may also have to pay a discharge fee when the loan ends.
• Ongoing fees. Some lenders charge a small monthly service fee instead of, or sometimes in addition to, the application fee.

Repayments

With many line of credit home loans, you don't have to make monthly or regular repayments. This gives you more flexibility. In many cases, you don't have to make repayments until you reach your credit limit.

Line of credit home loans are often interest only for the first few years, meaning you pay the interest charges now and repay the borrowed amount later.

This keeps your costs down, but if you continue doing this for a long time it could cost you a lot in interest.

The benefits and drawbacks of borrowing home equity

There are many benefits to withdrawing your equity if you need it. But any borrowing situation comes with risks that you need to know.

How to compare and apply for a line of credit

Comparing home equity loans is a little different to comparing traditional mortgages. You need to look at:

• Interest rate. The lower your rate the lower your repayments.
• Fees. The fewer the fees, the better.
• Borrowing amount. The amount you wish to borrow is an important consideration. Some lenders have fairly low maximum loan amounts, while others could lend you enormous sums of money (provided that you have the equity).

How do I apply for a line of credit equity loan?

If you're applying for a line of credit you may need to satisfy the following criteria or supply the following information:

More line of credit questions

How can I minimise the interest I have to pay?

You can save money on the interest payable over the life of your loan by using your income to offset the loan amount. This can be done by depositing your income into the loan account and then withdrawing money as needed to satisfy your living expenses from the line of credit. With this method, the interest on the loan is only calculated on the remaining balance of the account, which will lower your interest charges.

How can I protect my home?

From a lender's point of view, they have the security of your home in the event that you default on the loan. If your property depreciates in value, you will end up with less equity and you could even end up owing more on the loan than your home is actually worth. This is why it's a good idea not to borrow or use the full amount of equity available. Always leave a buffer.

How does a line of credit loan compare to a personal loan?

Line of credit loans typically have much lower interest rates than personal loans. If you're disciplined in paying off your line of credit, you could potentially save thousands of dollars in interest. Let's look at an example.

Over the course of the personal loan, you would pay $4,117 in interest. With a line of credit rate, you'd pay $1,322.74 in interest. That's a saving of more than $2,794 over five years.

However, this requires the discipline to repay your line of credit loan in a timely manner. If you ended up letting your line of credit loan stay open for 15 years, you would end up paying $4,234.29 in interest, eclipsing the amount you would have paid on a personal loan.