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Line of Credit Loans

These loans are an 'all in one' type of facility where the one account operates as both a loan and transaction account. A line of credit facility usually comes complete with transactional options such as a cheque book, eftpos card and credit card. They are also usually what is termed in the industry as 'evergreen'. This means that instead of having a set term of 25-30 years like other mortgage types over which the principal amount of the loan must reduce to nil they have no set term and can also be interest only, ie; a client that borrows $300,000 on a line of credit type of mortgage at the age of 25 can theoretically still have that $300,000 loan 50 years or more later.
Because a client has their income deposited directly into the loan account their money is always working to reduce the balance and thereby the amount of interest charged. If they are operating a credit card properly to pay for their day to day expenses and taking advantage of the interest free period it offers then they will reduce the loan even faster because it has the effect of leaving funds in the line of credit account longer thereby further reducing the interest charges.
A line of credit facility has a similiar or identical net effect as a 100% offset loan when it comes to negating interest but the interest rate offered by most lenders for a line of credit facility is generally (but not always) higher than that offered for a 100% offset facility. A line of credit account can be quite a popular choice for investment loans as they can theoretically be interest only for a longer time than a traditional type of loan where the maximum interest only period is usually 5 years. Another scenario where they are often utilised is for an investor who wishes to borrow against the equity in a property for future investment use and they do not want to pay interest on the loan (a line of credit facility can have a nil balance and no interest is charged whereas a traditional mortgage will close when the balance is reduced to nil) until such time as they actually make their investment.

Call or email for lender's comparison rate schedules or specialised Mortgage Software generated comparisons that details relevant features of competing loan products side by side and also gives an AAPR (average annual percentage rate) which is an indication of the 'true' cost of the loan over a seven year term.

The above Line of Credit content is information only and should not be construed as financial advice.

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