A line of credit (LOC) home loan allows borrowers to access funds from the equity in their property. This can be used separately or simultaneously for different purposes. Perhaps you want to do a home renovation or have emergency medical expenses. Perhaps you want to utilise the equity in your home as a deposit for an investment property.
What is a line of credit? How does it work?
A line of credit (LOC) home loan acts as a sort of credit card where you can access some of the existing equity that you have built up in your property. You can withdraw this money up to a certain amount which is determined by your lender.
What are its advantages and disadvantages?
A major advantage of a line of credit (LOC) home loan is that, since you are using your property as security against a loan, you present a lower risk to lenders and will usually pay a lower interest rate than you would on other types of debt.
However, since you are using your home as equity, if your investments go south or if you manage your loan poorly, you may lose your equity. In worst-case scenarios, you may even end up losing your house.
Looking to refinance line of credit?
Are you looking to refinance line of credit? To help lessen the financial blow, you can opt to refinance line of credit into more affordable loans with lower interest rates.
Homeowners can refinance their line of credit (LOC) home loan into a new home equity line of credit, one starting over with a new draw period and lower monthly payments. Or, you can refinance both your LOC and the balance of your principal mortgage into a single home loan. This can eliminate the LOC and leave you with just one, more affordable, monthly payment.
Refinancing to a line of credit loan: Should I do it?
On the other hand, are you deciding to switch to a line of credit (LOC) home loan? Before making this decision, make sure to review your current mortgage. Find out why it no longer meets your needs and whether an LOC loan will offer the features and benefits that you need.
If you need help deciding whether this move is right for you, I can help. As a licenced mortgage broker, I can help you make the right final decisions to best suit your lifestyle and needs.
An LOC loan can be beneficial if you have built up a considerable amount of equity in your home, as you can easily use it to purchase other items or assets. An advantage of using your equity in this way is that you can effectively borrow money at home loan interest rates, which are generally lower compared to personal loan rates.
A line of credit (LOC) home loan is suited to borrowers who are highly disciplined in handling their day-to-day finances and those who are money-savvy.
The Bottom Line
Line of credit (LOC) home loans have their own advantages and disadvantages. So, make sure to consider them carefully before switching to this type of loan.
On the other hand, if you want to refinance line of credit, there are alternatives that you can consider, such as a new home equity line of credit or you can refinance into a single home loan.
If you need help deciding on your loan, please do not hesitate to contact me.
Will Bell Mortgage Broker is a mortgage and finance broker based in Melbourne specializing in residential home loans. Will is all about the average Australian understanding just enough of the broader economy to take action on your own personal economy. He is the host of the My Personal Economy Podcast which you can check out here.
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