What you should use a line of credit for

When most people think about a Line of Credit they think of paying down their home loan faster and savings THOUSANDS of DOLLARS.

We have discussed this previously as to why, here at Hudson, we do not recommend using a Line of Credit product as a home loan. You should read more about our reasons for this in our article "The Line of Credit myth exposed".

WHAT WE DO RECOMMEND and use Lines of Credit for is investment use.

The Line of Credit is a very flexible product that allows you to use large or small amounts of funds for various investment purposes. You can use them to pay for the deposit and costs on a property, you can purchase shares, managed funds etc all from the same Line of Credit. You can set up direct debits from this account to regularly contribute into shares and managed funds to grow those investments over time.

Another reason for using them to take extra equity from a specific property is to limit the amount of a guarantee that may need to be given. If a home is in joint names and we want to purchase an investment property in a single name and we need the equity from the home to cover the deposit and costs, to achieve this we do a Line of Credit in the single name with the spouse's name as guarantor and then do a loan against the new property itself in the single name. This way the spouse is only responsible for the smaller debt against the home.

HOW DOES A LINE OF CREDIT WORK?

With a Line of Credit you get a specific limit that you can draw up to, but you only pay interest on the amount you draw out of the loan. So, if you have a limit of $100,000 and you draw down $5,000 you only pay interest on the $5,000. However, you have a further $95,000 available to use at any time for other investments.

If you are interested in looking at a Line of Credit for your investment purposes, you should make a time to speak with us here in Hudson's Finance Division. We will go over your existing lending and your short and long term goals to help you find the best possible loan structure and products for your situation.

There are a lot of lending packages out there that include Lines of Credit and we can help you put all of the pieces together to get the best deal possible and make sure that you don't miss out on the best possible interest rates!

Speak with your Financial Adviser or Finance Manager on freecall 1800 804 296 about this in more detail, or make a time online now.