What is a Home Equity Line of Credit?
5 November 2019
If you’re considering investing in property or undertaking a big renovation, did you know you could use the equity you already have in your home to help fund your project? Also known as asset lines, a line of credit home loan can be a great way to access credit (up to a limit) whenever you need it. Any money you borrow will be secured against the equity in your home.
The best part – you only pay interest on the credit you use.
How does a Home Equity Line of Credit work?
If you’ve got a line of credit home loan, you can take advantage of the equity in your home and use it as collateral to secure your loan.
For example, let’s say your house is valued at $500,000 and you owe $200,000 on it, this means you have $300,000 of equity. Taking your equity into consideration (and if you meet the lending criteria), the bank will then establish a ‘line of credit’, i.e. a predetermined amount of credit.
Draw down your credit when and how it’s convenient
Similar to making withdrawals from a bank transaction account, you can access funds from your Line of Credit using a Visa Debit or EFTPOS card. You can also make external transfers, write cheques and make BPAY payments. With a line of credit, you can easily draw down funds when you need access to funds, rather than going through the headache of applying for multiple loans over time.
Pay interest only on the credit you use
Even if you only use a partial amount of your credit, you won’t be charged interest on the total funds borrowed.
Let’s say you have a Suncorp Access Equity Line of Credit of $100,000 and you decide to draw down $20,000 for renovations on an investment property. You’ll only be charged interest on that $20,000, while the rest of your $80,000 Line of Credit (if unused) stays interest-free.
Unlike a fixed-term principal and interest loan, monthly repayments on a home equity line of credit are interest-only. This means there are no fixed principal repayments and your repayment timeline is up to you.
Deciding whether a line of credit is right for you
Loan flexibility can make a line of credit appealing. However, as monthly repayments are interest-only, a line of credit could end up costing you more over time than a fixed-term loan. This is why Suncorp Area Manager for Home Lending, Jamie Brady, says financial discipline is key.
“One of the most attractive benefits of a line of credit is that the interest rate is often lower than other products like a personal loan or credit card. However, I always recommend sitting down with one of our Home Lending Specialists to discuss whether the benefits match your individual circumstances.”
Add loans – another good way to access your equity
Jamie Brady advises that an Add home loan can be another useful home equity funding option. “An Add loan simply adds the amount you wish to borrow onto your existing home loan. Add loans can be fixed interest and principal loans, so this can help you get a better picture of your total repayments.”
Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product.