What is a line of credit home loan?

A line of credit home loan lets you withdraw money from your equity to spend on renovations, investments or even a holiday. But what are the risks?

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By

Richard Whitten

Edited by

Joelle Grubb

Updated

Fact checked
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Key takeaways

  • A line of credit equity loan allows you to borrow money using the equity in your property.
  • Equity is the portion of your home that you own. It's calculated by taking the value of your home minus any money you still owe on it.
  • You can use a line of credit like a credit facility, accessing it as and when you need to and only paying back what you've drawn down.

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

When you access money through a line of credit, you're withdrawing money from your home loan based on the amount of equity you have built up in the home. The equity in your home is the amount of property you own, which is based on the property value minus the amount of debt you have left.

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

Note: The property value is based on the current value, not the value when you bought it. So, if your property value has increased since you purchased it, you have even more equity to access!

How much of my equity can I borrow?

Most lenders will lend you up to 80% of your property's value. This means you can borrow the difference between the equity you currently have and 80%.

Some will go up to 90% or even 95%, but an 80% limit is far more common.

You can work out how much equity you could borrow using this formula:

(Property value x 80% LVR) - existing debt.

Example:

  • $700,000 x 80% = $560,000
  • $560,000 - remaining debt of $400,000 = $160,000

The amount you would access through your line of credit = $160,000

How can I use a line of credit loan to invest?

Investors can use their equity to buy an investment property. For example, if your property is worth $500,000 and your mortgage balance is $200,000, then you have $300,000 worth of equity. This is a substantial amount of money that can be used to fund the purchase of another property or invest in other assets, such as shares.

How much does a line of credit home loan cost?

Line of credit equity loans are not as popular as they used to be because of the high cost that can come with them, particularly when compared to other options you might have to access your equity.

Costs you need to be aware of are:

  • 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.

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. But line of credits usually come with much higher interest rates than your home loan and some personal loans.

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.

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.

Average rate for a line of credit
The average interest rate for a line of credit home loan is 7.20% in August 2025, according to the rates we have in Finder's rate database.
Source: Finder's rate database

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.

Benefits

  • Accessibility. Line of credit loans are easier to obtain than other types of loans and credit cards.
  • Flexibility. The funds can be withdrawn easily via cheque or an ATM card linked to the loan. Some lenders provide borrowers with the ability to withdraw funds through an online banking system or a telephone banking system.
  • Additional repayments. Extra repayments on the loan can be made at any time, which can help reduce the amount of interest paid over the life of the loan.
  • Lower rates than unsecured credit. Because a line of credit is secured against your home, its rate can be lower than unsecured products such as credit cards, although it is usually higher than a standard home loan rate.

Drawbacks

  • Difficult to manage. As it's easy to access the money and most line of credit loans involve a large amount of money, the borrower needs to be financially disciplined to manage this type of loan.
  • Security. If the loan isn't repaid according to the terms of the contract, the lender can take the property as payment.
  • Equity loss. Your equity is wealth. It's yours to use as you see fit, but keep in mind that by using it, you're reducing – hopefully temporarily – the value you have in your house.
  • No end date. The flexibility of a line of credit can be a bad thing too. If you take a long time to repay what you've borrowed it could get expensive.

How to compare line of credit equity loans

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).
Raj Ladher's headshot
Expert insight: LOCs are best used for investments and business

"A Line of Credit (LOC) is like having a huge credit card facility, only paying interest on used funds. These facilities are generally only available for investment and business funds and not personal, so they do come with higher interest rates. With the introduction of offset accounts, the use of LOC's have reduced significantly as they work in the same way however cheaper."

Raj Ladher's headshot
Raj Ladher
Senior mortgage broker, Equilibria Finance

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

If you're interested in applying for a line of credit equity loan, you should speak to your lender or mortgage broker.

While you can get a line of credit from your existing home loan lender, you may be better off refinancing to a new one. Get an idea of what your existing has to offer and then compare with the lenders in the above table.

Your mortgage broker could be able to help you with other ways to access your equity at a lower cost than line of credit loans would be.

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

  • Name and address for each borrower
  • Purchase date and price of your home
  • Employment income
  • Outstanding balance and monthly payment on current mortgage
  • Estimated market value of your home
  • Requested loan amount
  • Photo ID for all borrowers

Frequently asked questions about line of credit equity loans

To make sure you get accurate and helpful information, this guide has been edited by Joelle Grubb as part of our fact-checking process.
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Senior Money Editor
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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

Richard's expertise
Richard has written 764 Finder guides across topics including:
  • Home loans
  • Credit cards
  • Personal finance
  • Money-saving tips
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37 Responses

    Sue's avatar
    SueFebruary 3, 2023

    My father is ninety five owns his home no mortgage I am living with him at the moment caring for him. I would like to build a granny flat under my house could he get a line of credit on his house to do this
    When granny flat is finished we would sell his house the value of his house is $600,000
    Thanks
    Sue

      Richard Whitten's headshotFinder
      RichardFebruary 21, 2023Finder

      Hi Sue,

      It could be possible to do this, although a lender would still need to see how you can repay the money you’ll borrow. And a lender may have some restrictions around lending for renovations.

      I suggest talking to a mortgage broker. They can help you navigate more complex loan scenarios like this.

      Kind regards,
      Richard

    Hels's avatar
    HelsSeptember 23, 2022

    Is a line of credit still offered as a product to personal banking customers? I can only find one with CBA and RAMS.

      Rebecca Pike's headshotFinder
      RebeccaSeptember 30, 2022Finder

      Hi Hels,

      If you’re looking for a line of credit personal loan, we have a guide here with a few lenders that offer the product.

      If you want more information on line of credit home loans, you might want to speak to your existing lender or mortgage broker for more information on your specific circumstance.

      Thanks,
      Rebecca

    Chris's avatar
    ChrisApril 11, 2018

    I own my house that

    We own our house and want to take out a line of credit for 100k and our house is valued at 850k
    I am a sole operator of a small business that only turns over around 20-30k, my question is if my low income isn’t enough to meet the application credentials can I use a guarantor for this type of loan?
    Regards
    Chris.

      Joshua's avatarFinder
      JoshuaApril 12, 2018Finder

      Hi Chris,

      Thanks for getting in touch with Finder.

      The answer to your question is yes. It is possible to use a guarantor for a line of credit loan. However, it would still depend on your chosen lender whether they accept such arrangements or not. Your house is already good collateral for your loan and so, lenders might still consider your application even if you don’t have a guarantor. There are lenders offering secured personal loan options that allow you to use your home equity as a guarantee that you might want to consider. But of course, having a guarantor can increase approval especially if the guarantor has a good credit score and financial standing.

      For this reason, I highly recommend that you get in touch with your chosen lender and determine whether they accept a guarantor or not. Here’s our list of guarantor personal loans if you’d like to compare your options. You can use our comparison table to help you find the lender that suits you. When you are ready, you may then click on the “Go to site” button and you will be redirected to the lender’s website where you can proceed with the application or get in touch with their representatives for further inquiries you may have.

      Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions.

      I hope this helps. Should you have further questions, please don’t hesitate to reach out again.

      Have a wonderful day!

      Cheers,
      Joshua

    Rav's avatar
    RavApril 6, 2017

    Hi

    My home is valued at approx. $650K
    I currently have around $30K to pay off
    I have a current like of current of $59K
    I am looking to purchase a investment property
    I am employed full time
    How much can I borrow

      Harold Jacob's headshotFinder
      HaroldApril 7, 2017Finder

      Hi Rav,

      Thank you for your inquiry.

      It woul be nice getting in touch with a licensed mortgage broker so that you can review your borrowing capacity. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that’s more inclined to review your application.

      Moreover, I’m afraid we can’t really tell you how much you can borrow because we are not a lender and the answer would depend on your whole financial situation. Thankfully, you can check our borrowing power calculator to get an idea how much you can borrow.

      I hope this information has helped.

      Cheers,
      Harold

    Shelley's avatar
    ShelleyMarch 13, 2017

    I have a 50,000 home loan / line of credit. When I was notified by the bank that the loan was switching from interest only to monthly principal + interest and this would equal 440 / month, I paid 48,500 dollars off the loan in order to reduce my principal. The bank has continued to charge me 440 per month, vent though my loan balance is now $1500. Is this legal? They say that I have the ability to use the 48,500, so I need to pay $440 a month for this privilege. What?

      Harold Jacob's headshotFinder
      HaroldMay 5, 2017Finder

      Hi Shelley,

      Thank you for your inquiry.

      With your current situation you would need to read your loan docs or get a financial advisor/accountant or mortgage broker to read them to help understand how the bank is able to do this.

      I hope this information has helped.

      Cheers,
      Harold

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