Line of Credit
Introduction to Line of Credit
We have dozens of enquiries every week from people asking if they can get a line of credit on their home loan.
The short answer is yes, but it depends on your circumstances. Fortunately the advisors we work with are experts when it comes to lines of credit from home loans or mortgages and can give you the right advice.
In this article we’ll answer the most commonly asked questions, such as-
- What is a line of credit on a home loan?
- How does a line of credit work?
- Why should I get a line of credit on my home loan?
- What are the advantages and disadvantages?
- How much can I get from a line of credit on my home loan?
- How do I go about getting a line of credit on my home loan?
- Where can I find the best rates?
- Can I get a line of credit on a reverse mortgage?
- Will bad credit affect my application for a line of credit?
- Where can I find a line of credit calculator?
- Why should I talk to a home loan line of credit expert?
If you’re unsure of how to proceed, you can contact one of the expert advisors we work with here. There’s no fee and no obligation.
What is a line of credit on a home loan?
Often called equity lines, it’s a line of credit that is usually secured against your home. It’s an arrangement between you and the lender which provides an agreed amount of credit that you can use whenever you need it
How does a line of credit work?
Suppose you borrow $250,000 from a bank or other lender to buy a home. You put down a deposit of $50,000, which means that at the time you take out your home loan, your equity is $50,000.
A few years later, your mortgage has been reduced to $150,000, but the value of your property has increased to $350,000.
This means you now have $200,000 equity in the property. So as long as you meet the lender’s criteria, you may be able to take out a loan against that equity.
A line of credit works a bit like a credit card. You have a limit that has been pre-approved and you can borrow as much of the agreed amount as you want, whenever you need it
Why should I get a line of credit on my home loan?[vc_column_text]There will come a time in your life when you may need an injection of cash. This could be for something as simple as much needed renovations, school fees or a new car.
You’ll also pay less interest through a line of credit than you would if you used a credit card to pay for these purchases.
Many people use the equity in their home as a deposit for an investment or holiday home and we work with advisors who are experts when it comes to investment properties. Contact us today they can help you find the best deal.
What are the advantages and disadvantages?
Line of credit comes with certain advantages as well as possible pitfalls, and it’s important to consider both before applying for this type of finance.
One of the main advantages is that as you’re using your house as security, lenders will see you as less of a risk and offer a lower interest rate than other forms of finance, such as personal loans or credit cards.
If you set up a line of credit from the outset, you’ll have access to the funds almost immediately should you ever need to use it.
Because all of your income is deposited into the account until you need it, a portion of it stays in your account for longer, which reduces the interest paid on the loan.
The downside is that you need financial discipline. If you are easily tempted by frivolous purchases, then a line of credit may not be right for you.
Also the more you take out, the longer it may take to pay out you loan.
And remember, if things go badly financially for you, you could lose your home.
Fortunately, the advisors we work with are on hand to guide you through your application and help you safeguard yourself against the possible risks.
How much can I get from a line of credit on my home loan?
Some lenders set your credit limit at a percentage of the amount of equity you have in your home, usually 80-85%, subject to valuation and lenders criteria.
For instance if you have a home worth $300,000 and a mortgage with $120,000 left to pay, then your home equity would allow a potential line of credit up to $153,000 (85% of equity).
How do I go about getting a line of credit on my home loan?
Getting approval for a line of credit is much the same as any other loan.
But interest can be higher than a standard home loan, because lenders consider an equity loan to be 2.4 times riskier. This is because as the funds are readily available, the borrower needs to be financially astute, or they can get themselves into financial difficulties.
The lender will also want to value your property, so you should do your utmost to ensure it looks at its best. Your home, garden and surrounds should be as neat and well maintained as possible.
Treat the valuation as an open home inspection, as if you were trying to sell it. The better the presentation, the higher the possible valuation and the more equity you will be able to access.
To kickstart your application, make an enquiry and the advisors we work with will introduce you to the best line of credit lender based on your needs and circumstances
Where can I find the best rates?
There are many providers in the marketplace and they are all different, with different rates of interest and fees.
Finding the best deal is difficult, which is why you should contact one of the brokers we work with. They are experts when it comes to line of credit and have access to all lenders, not just a select few, which means they can find the best rates on your behalf – make an enquiry to kick off your application today.
Can I get a line of credit on a reverse mortgage?
Yes, as long as you are over 60 years of age.
You cannot release as much equity as a standard line of credit loan, but it offers more security for the home-owner.
The first being that there are no repayments to make and the second one is that you retain ownership of your home.
You can find out more about reverse mortgages here.
Will bad credit affect my application for a line of credit?
According to the credit agency Veda, there are over 600,000 Australians who have been deemed to be a high credit risk, at the time of writing.
Time is the great healer when it comes to bad credit and some lenders will look at an application favourably depending on the severity of the incident, what the final outcome was (ie was the debt finally paid out) and when the incident occurred – the longer ago it happened, the better.
Common FAQs when it comes to bad credit home loans
- Will I have to pay a higher interest rate? – That depends on your circumstances. Bad credit home loans (also known as non-conforming loans) are seen by banks and lenders as higher risks, so they commonly require higher interest rates. If you can show a good saving history, low debt and a stable employment, then you’ll have a better chance of securing a home loan.
- Will I still be able to access offset accounts, redraw facilities, etc? – In a lot of cases the answer is yes. Many bad credit home loans offer those facilities.
- Will I need a guarantor for a bad credit home loan? – No, but it could make you application more attractive to more lenders and give you access to better deals.
- I have settled the debts from my bad credit history, is a bad credit home loan my only option? – Even if you have paid off your debts, if you still have bad marks on your credit history, you may still have to apply for a bad credit home loan. Remember, some of the more severe defaults (such as bankruptcy), can stay on your credit rating for up to 7 years.
- Can first time home buyers get a home loan with bad credit? – In many cases, yes. You could even apply for first home buyer grants if they are available in your state.
- I want to get a home loan, but what if my partner has bad credit? – If you’re looking ate a joint mortgage, this could affect your chances of getting the best rates. An option could be to apply as a single applicant, but without the other person’s income taken into account, this will reduce your borrowing power.
- I have been bankrupt or subject to a Part IX Debt Agreement, can I still apply for a home loan? – If these are still in force, then you can’t apply for a home loan. In most cases you will have to wait at least 12 months after the bankruptcy or debt is cleared before a lender will consider your application.
OK, I have a bad credit history … is there anything I can do?
Yes. The first thing is ‘don’t panic’ and above all, don’t contact one of the main banks or lenders.
Don’t get us wrong, we love the banks and other lenders, but at best they may not be able to help, at worst, they could leave even more marks on your credit rating, making getting a home loan even more difficult.
There good news is that the brokers we work with are experts when it comes to finding a home loan for people with bad credit.
They have access to the whole market and know of specialist lenders who can help people with bad credit. Contact us here for a no obligation chat.
You can read more about bad credit mortgages in Australia here.
Where can I find a line of credit calculator?
There are calculators available online, but because everyone has different circumstances, they can only give you a rough indication of the amount you can borrow and the rates you’ll get.
For the most up-to-date and right advice on line of credit home loans,talk to one of the specialist brokers we work with today.
Why should I talk to a home loan line of credit expert?
Not all brokers are the same. Some have access to just a few lenders, whist others, like the brokers we work with have access to the whole market, and so they can find the best deals for your circumstances, even if you’ve had bad credit in the past.
The brokers we work with have passed a 12 module training programme and are experts in their particular area.
We don’t charge a fee and there’s no obligation, just the right advice every time.
Contact us here today, and then just sit back and let us do all the hard work.