Line of Credit Home Loans
Starting in the mid-seventies, the Australian property market began to increase steadily by 3% per year. Since the nineties, that increase has jumped to 6% annually. As of 2007-2008, Australian houses are among the highest in value worldwide. This is excellent news for Australian homeowners. The more your home is worth, the more financial opportunities are available to you.
Compare these loans with 194 other products
Take, for example, a Line of Credit. This type of loan is actually a revolving line of credit secured by the first mortgage on a residential property. It enables a homeowner to tap into his or her home's equity; that is, the difference between what is owed on a house and how much the bank says that house is worth. The stream of money that becomes available to you can be used in a variety of ways including:
- Investments
- Purchase of most types of property
- Debt consolidation – your personal and car loan can be combined into one mortgage
- Education
- Medical bills
- Renovation of your property
- The vacation of a lifetime
Because your home is more than likely your most valuable asset, you will probably not use a Line of Credit for day-to-day expenses. But you could, if you needed to. If you use your money for investments that produce income (ie; shares or real estate), the interest on your mortgage may be tax deductible.
A Line of Credit is different from conventional loans in that you do not receive a lump payment up front. You are able to borrow throughout a lengthy draw period (usually 5-25 years). Your repayment is calculated as the amount you end up taking plus interest. At the end of your draw period, the full principal is due in either in whole or amortized.
Advantages of a Line of Credit There are many reasons why so many Australian homeowners are choosing to go with this type of second loan instead of going with other funding options. Look at the following features of a Line of Credit:
- You can withdraw funds at any time up to a predetermined limit (usually higher than a credit card maximum and almost always more than $20,000).
- Repayments are flexible. You can pay off in full or make monthly payments. You can also increase your payments and, thus, decrease your loan term. When times get tough, you can opt to reduce or sometimes even eliminate repayments for that period.
- Interest rates are typically less than that of a credit card.
Disadvantages of This Type of Loan - It is crucial that you see this type of second loan for what it really is – a really great credit card. But still a credit card. If you have credit cards and are able to use them wisely, then you will have no difficulty dealing with a Line of Credit. It is important that you stay within your financial limits, budget, and possess discipline of the financial sort. Try to invest in things that will appreciate, not depreciate. You will end up with a high loan balance if your account is not managed well.
Financial Advice for those Considering a Line of Credit - As with any loan, it is important to educate yourself and listen to a bit of financial advice.
- If interest rates plummet, continue making your regular monthly payments.
- Consider putting any lump sum payments you receive (ie; tax refunds) into your account. You can always withdraw them.
- For tax reasons, split your Line of Credit between personal and business.
- Avoid loans with monthly fees.
If you are a homeowner who has built up some equity in your home (and, in these times, what Australian hasn't?) and would like to invest, you might want to consider taking out a Line of Credit. You will have easy access to your funds and, frankly, there isn't a more flexible second loan on the market.
