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Why Use a Line of Credit
A Line of Credit is an agreed stream of low cost finance that is offered to your by your financial institution and secured against the equity that you have in your home through your existing home loan.
Lines of Credits are designed for home owners who have substantial equity available in their mortgage and they work in a similar way to an overdraft in that the funds in the stream can be withdrawn up to a certain limit. The most common uses of Lines of Credit are for personal finance for cars, stocks and shares and home renovations.
Lines of Credits have an enormous advantage over other types of loans in that you can use the funds as you need them and only pay interest on the outstanding balance on a daily basis. Sometimes the interest that is paid on a line of credit can be used as a tax deduction depending on the use of the line of credit.
However, it is important to realize that with every financial arrangements there downsides. For instance, each time you tap into your line of credit you are effectively reducing your level of "ownership" in the property. In addition if you choose to use your line of credit to invest in shares, naturally there is no guarantee that the investment will pay dividends in the long term.
In summary, a Line of Credit can be a useful tool to help home owners manage debt or create asset wealth at a comparatively low rate of interest but you do need to be a budget conscious person to effectively manage this type of loan so if you have a tendency to spend any money you have access to, then this may not be the loan for you.
