What is a line of credit loan?
This type of property loan revolves around equity built up in your property and allows access to funds when needed. These products are creative ways to raise funds for investment by providing cash up to a pre-arranged limit. Each month the loan account balance is reduced by the amount of cash coming in and increased by the amount paid on the credit card or withdrawn in cash.
As long as there is consistently more cash coming in than going out these accounts can work well. However, they can be very costly if the balance of the line of credit is not regularly reduced.
It requires an interest-only payment as a minimum each month, which can add up to a lot of interest over the long term.
What are the pros and cons of a line of credit loan?
- Use the money you need and pay it back when you can
- Home loan interest rates tend to be lower than credit cards or personal loans
- Offers flexibility
- Can help you fund things like renovations, holidays or even investments
- Possibly reduces equity in your residential property
- Usually higher interest rates than other types of loans
- Need to be disciplined to make principal payments regularly
- Can be very expensive if not used carefully