The lowdown on line of credit loans
Apart
from being a great financing tool, a line of credit is also an excellent
addition to your wealth creation strategies.
A
line of credit or home equity loan is usually established as a continuous redraw
facility secured by your property's value. For example if you own a property
worth $400,000, you may be able to secure a line of credit for $320,000.
You
can usually access these funds via a cheque book or an internet banking
facility. Withdrawals and deposits can be made to your heart's content as long
as you keep below your loan maximum.
Typically
on these types of loans there are no early payment fees, no redraw fees and no
term limit on the length of the loan. Importantly, there are usually no minimum
monthly repayments required as long as the loan amount is below its limit.
Another
advantage of a line of credit is that you do not need to seek permission from
the institution each time you wish to utilise the facility.
There
are a couple of downsides of using a line of credit which should be taken into
consideration when looking at your financing strategies. Firstly, most lines of
credit are subject to an annual review. The financial institution may request
that each year you provide them with financial statements, tax returns and other
financial information, so they can ensure that you have the ability to make loan
repayments going forward.
The
second downside is that they are usually callable by the financial institution
at any time, for any reason. The financial institution may decide that they want
their money back and you have to pay up, usually within 30 days. In practical
terms the financial institution won't call in a loan for no reason. However, if
you have a short-term problem, they could call the loan in at any time, without
giving you the opportunity to rectify the default.
Lines
of credit are often used in conjunction with more permanent finance, for example
if you purchase a property for $400,000 and require $320,000 of finance, you may
take a five-year fixed interest rate for $200,000 and take the other $120,000 as
a variable rate line of credit.
For
disciplined investors, a line of credit is a flexible and very useful wealth
creation tool. However, if you have difficulty in restraining yourself from
spending money then, this product may not be suitable for you. Also be aware
that many loans now have redraw facilities and a line of credit may not be
necessary for you.
For more information on how
Momentum Wealth can assist you with your loan needs, contact Diana
Armour on 1-800-000-159.
Finance
Broking Services are provided by Momentum Wealth Finance Pty Ltd*. We have
brokers all around
*WA
Finance Brokers Licence 3170.
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