Cherie Mildwater investigates the best way to unlock your cash in your property to carry out those renovations or purchase other investments you have always wanted but couldn’t afford to.
March 15, 2010
With the recent interest rate hike the thought of putting extra money aside to save for renovations or other investments you have been dreaming of can be quite overwhelming and for some impossible, but there is a light at the end of the tunnel.
A line of credit or equity loan is a short-term solution available to take help take the pressure off. It allows you to access funds as you need them, giving you the flexibility to pay for that new kitchen or bathroom, finally install the pool that the kids have been pestering you about for years or buy that boat you have had your eye on for some time.
Generally a line of credit is an interest only loan with no set period for the loan to be repaid by. It is essentially an overdraft facility that is secured against your existing home. It is flexible, permitting you to choose when to make payments on the principal, which suits those of you who may be unable to meet their regular payments on a standard loan. With a line of credit interest is charged only on what you have used and is charged monthly to your account.
Most lenders give you the option to make as many additional repayments as you desire and you can redraw on this at any time so long as there is adequate credit remaining on the loan. However, make sure you check the fine print as there could be charges involved.
Like most types of loans available, you can search, compare and apply for a line of credit that best suits you and meets your lifestyle online at RateCity. Here are some hints and tips to help maximise your line of credit:
- Organise to have your wages paid directly into your loan account, as this will reduce the amount of interest calculated.
- When making purchases on the credit card attached to the loan, ensure you make the most of the interest free period and pay the bill before the due date.
- If you are a property investor, try to obtain a line of credit that is portable so that you can transfer it between properties, which can save you money on stamp duty and other fees.
The negative side to a line of credit is that most financial institutions offer higher fees and charges including annual or monthly fees. There is also the chance of it turning into a longer than planned expense because of the common interest-only structure you may end up paying back a greater amount than if you had a redraw facility on your home loan or chose to pay principal and interest.
But with any loan, interest rates, features and fees may vary so it is important to compare options on RateCity to determine if this type of loan is best for you.