Line of Credit

Understanding Your Home Loan

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A Line of Credit is an ongoing (evergreen) source of low cost finance which is secured against the equity in your home.

It is similar to an overdraft or credit card facility as you have an approved limit and as long as you remain under your approved limit there is no need to make a minimum payment. Although Lines of Credit were initially designed for high income earners that have large surplus disposable income, they are now a popular vehicle for mortgage minimization programmes.Your income (whether it be salary, rental income etc) is automatically credited to your line of credit facility.

You have access to your loan with an ATM card or cheque book. As interest is calculated the loan balance on a daily basis, by having your income is credited to the loan it reduces the interest calculated and therefore you are able to reduce the interest charged to your loan.

You can operate a line of credit as your main transaction account or use a credit card for your daily expenses, clearing the balance from your line of credit on a monthly basis.

The downside with this type of loan is that unless you are extremely disciplined and stick to a strict budget there is the temptation to use your funds and therefore the loan is never paid off.