Line of Credit Home Loans

Compare line of credit rates for January 2021

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Name	Product		Interest Rate (p.a.)	Comp. Rate^	Application Fee	Ongoing Fees	Max LVR	Monthly Payment
P&N Bank Equity Access Home Loan		P&N Bank Equity Access Home Loan	4.87%	0%	$395	$10 monthly ($120 p.a.)	90%	$794.33	A home loan which gives flexible access to your equity.	Enquire now	Compare	loading Fetching your data...
ANZ Equity Manager - Variable		ANZ Equity Manager - Variable	6.01%	0%	$600	$150 p.a.	80%	$901.19	Access your equity with a low variable rate and low fees.	Enquire now	Compare	loading Fetching your data...

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St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)

Up to $4,000 refinance cashback. With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get up $4,000 cashback and borrow up to 80% of the property's value. (Terms, conditions & exclusions apply).

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

When you access money through a line of credit, it means you are withdrawing money from your home loan based on the amount of equity you have built up in the loan.

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

How much of my equity can I borrow?

Most lenders will lend you up to 80% of your property's value. Some will go up to 90% or even 95%, but an 80% limit is far more common. Using our example of a $500,000 loan with a $200,000 loan balance, this means you can borrow to up to 80% of the property's value.

• $500,000 x 80% = $400,000
• $400,000 - existing debt of $200,000 = $200,000
• Amount you can access through your line of credit = $200,000

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 have a $200,000 line of credit and you spent $30,000 on a car, you would only pay interest on the $30,000, not the full $200,000.

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, but remember this is only charged on the amount you spend, not on the total credit limit.
• 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, it has the security of your home in the event you default on the loan. If your property declines 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 5 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.