What is an Line of credit loan

November 05, 2016
Tracy Reynolds

Line of credit loan is a type of property loan that revolves around equity built up in your property and allows access to funds when required.

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loan account balance is reduced by the amount of cash coming in and increased by the amount paid on the credit card or withdrawn in cash.

So 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.

As with all home loans there are pros and cons, the pros of a line of credit loan are that you can 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 and a line of credit loan can offer flexibility.

The cons for a line of credit loan are that it possibly reduces equity in your residential property, they usually have higher interest rates, the borrower will need to be financially disciplined to make principal payments regularly and it can be very expensive if not used carefully.

Posted in: Property market

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