Reduce your interest payments with a line of credit mortgage

A home loan with a line of credit allows you to put all or most of your salary into your home loan and make the bulk of your purchases through the month by using your credit card and taking advantage of the interest free period. By doing this, you can reduce the outstanding balance of your home loan thereby saving you money through reduced interest charges. Here we look at line of credit home loans available in Australia including the benefits and who they would most suit.

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What is a line of credit account?

With a line of credit feature on your home loan, you can save money on your total interest charges by paying all or most of your entire salary into your home loan each month. Instead of using your salary to pay for everyday living expenses, you make your purchases using your credit card. Ideally, you will use a credit card with at least a 55 day interest free period so that you are not paying interest on your monthly living expenses.

With your salary deposited into your line of credit home loan, you will be reducing the amount of interest that is payable calculated on the outstanding balance. When your credit card payment for the month falls due, you pay by drawing down the payment from the extra amount in your line of credit account.

The benefits of a line of credit account

The main benefit of a line of credit account is that you can reduce the total interest that you would pay over the life of the loan. Another benefit is that you will have extra funds in your home loan that you can use should the need arise.

Is a line of credit account suitable for me?

A line of credit home loan may be more suitable for some home borrowers than for others. For example a line of credit home loan is often an interest only loan with no specific term for repaying the principal. A line of credit loan will generally have a slightly higher interest rate and may be most suitable to those who have fluctuating incomes. Line of credit home loans are popular in Sydney, Melbourne and Brisbane where mortgages and incomes are generally higher than in other areas.

Also, a line of credit loan will be more beneficial to those who can pay extra than the minimum monthly repayment.

For more information on line of credit loans visit our home loan resources page for line of credit options available from our partners.

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