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Line of Credit

By Mary Nebotakis, Managing Director, Natloans, B. Eco, Dip. Financial Services

What is it?

Have you ever thought about what you would do if you were in an emergency and couldn’t afford to dig your way out? What if a storm knocked out your kitchen windows? Or if you needed to pay hospital bills due to an unforeseen accident? The answer is surely yes, we’ve all fretted over what the unforeseen future may hold, and wondered how we could possibly afford to trudge through it unscathed, if we simply didn’t have the funds to afford reparations. Lucky for us, finance brokers and lenders can provide you with a with a simple, straightforward solution to provide you with the security you need for yourself, your home, and your family; The Line of Credit Solution.

How does it work?

Basically, an agreement must be made between you and your lender which grants you access to a set amount of money whenever you need it. Why is the lender so happy to give you the money to borrow? Because the loan, or line of credit, is secured against the equity of your house.

To illustrate, suppose that you take out a loan for a house at $300,000, and your home is valued at $600,000. The equity on your house is therefore $300,000, which means your loan to value ratio is at 50%. Provided you meet all of your lender’s lending criteria, you would be able to apply for a line of credit of up to 80% of the property value, that being another $180,000 (so as to avoid Loan Mortgage Insurance). Therefore, if the loan is fully drawn own, you would be left with total loan of $480,000.

With this in mind then, the line of credit can be said to function in much the same way as a credit card but with a much lower interest rate, wherein it provides you with a pre-approved amount of credit to access. You can use as much of this credit as you want whilst paying off the interest accrued from the outstanding balance.

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