Line of credit
A Line of credit allows you to use the equity you have built up in your home as collateral for further credit and is characterised by flexibility and ease of use. It operates similar to a credit card and is the equivalent of an overdraft facility.
Property prices all over Australia have surged by more than 50% in recent years giving existing home owners substantial equity to use for securing a loan - Equity is the difference between what you owe on your home loan and what the property is actually worth (according to the bank!).
The amount of credit that is available to you depends on the amount of equity you have in your home and your ability to make repayments. Typically you can borrow up to 80% of your home value (or 90% with Lenders Mortgage Insurance) provided you have the financial resources to service the debt.
Line of credit loans are commonly used to finance a deposit on an investment property, to renovate and increase the value of the existing home, or to purchase expensive items like a car or boat.
Line of credit funds which are used to invest in assets that appreciate in value can increase your wealth, but inversely can result in greater debt when applied to items that depreciate or have no residual value like cars, boats, spa's, holidays etc.
For more information on debt management strategies, contact us to arrange a free initial interview.