LOC: A Brief Explanation

Viewing 3 posts - 1 through 3 (of 3 total)

Still in School
Member
@still-in-school
Join Date: 2003
Post Count: 1,844
December 3, 2003 - 10:41 pm
Just thought i would help out, seems that this question is always beening asked and repeated and that poor Melbear is always having to re-explain what a Line of Credit is.
This is a quick brief explanation taken from a text book.
cheers
s.i.s
Save on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
Still in School
Member
@still-in-school
Join Date: 2003
Post Count: 1,844
December 3, 2003 - 10:47 pm
A line of credit is where you are granted a line of credit against the equity you have in your house (that is, what the house is worth less what you owe). This type of loan is similar to an overdraft and the interest rate charged is more than a normal vairable loan but less than an overdraft. You are given a cheque book with which you can draw up to a certain limit.
You can pay off the loan normally, you can pay off exta or you can withdraw money up to your limit. If you pay back more, you will earn the mortgage rate of interest on the extra repayment, which is offset against the mortgage owing and is tax-free. You can withdraw funds to pay for anything from a share or property investment to a holdiay or a new car. The obvious risk is that with such an easy and readily available form of finance on tap you may end up never paying off your mortgage.
Save on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
Mortgage Hunter
Participant
@mortgage-hunter
Join Date: 2003
Post Count: 3,781
December 6, 2003 - 7:40 am
Imagine a LOC to be like a credit card.
You pay to set it up.
It sits there doing nothing and costing little if not nothing.
One day you need to draw some funds and you do so.
You now pay interest on this debit balance each month.
You can pay it off or use it up to the limit at any time.
If you need, and security and servicability permit you can raise the limit.
Hope this is helpful!
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.