Line Of Credit

What Is It?

A line of credit is a type of loan, where the bank determines a limit amount. It differs from a normal loan in that it allows you the borrower to use the money available in the line of credit (LOC) at any time and then repay the amount outstanding at the your discretion.

Home Equity Line of Credit

Often the first form of this type of loan that a property investor discovers is the home equity line of credit. A home equity line of credit is sometimes referred to as a HELOC.

This is where the lending institution vvalues your home and uses the difference between the current value and the amount you owe on your home to calculate how much they will make available to you based on the equity you have in your home.

For example if you have a home valued at $500,000 and you owe $200,000 on it, the equity you have available would be $300,000. Your lending institution will then agree to loan you up to a limit amount determined by their lending criteria.

Why Would You Want One?

The first and most compelling reason why you would want to have and use a line of credit is the freedom and flexibility it gives you.

A conventional loan is linked to a specific purpose.

With a line of credit the lender has agreed to loan you a certain amount of money, but you are free to use that money for any purpose you decide, and you have the flexibility to draw upon your available balance at a time that suits you best.

You can use "draw downs" to fund the deposit and purchase costs for the purchase of property to meet a temporary shortfall in cashflow for funding the monthly payments on your property loans or to fund a tax free life style that the increasing values of your property portfolio will enable you to live.