Line of Credit

Home Equity loans, or 'lines of credit' as they are also commonly known, are essentially an overdraft. The borrower has a loan 'limit' set in place that he or she must remain under at all times. Often people use them to initiate interest reduction strategies by placing their salary and savings into the account and drawing on funds as required during their pay period. As interest is calculated daily on the outstanding loan balance, the result is a reduction in the interest that would be levied under a normal home loan.

A cheque book or ATM/credit card can be linked to the facility in some instances, providing even greater flexibility.

Investors often find this style of product attractive, at least as a component of their overall loan set-up, as they can raise funds up to their limit at short notice.

This type of loan does not suit everybody. You need to be disciplined with your use of available funds as you can redraw 'equity' up to the set limit at anytime.