Line of credit, revolving lines of credit.

A line of credit [Revolving lines of credit]

A line of credit is any credit facility that allows the borrower to draw to a certain credit limit and replace the drawings as cashflow permits. Examples are credit cards, a business overdraft and a revolving line of credit home mortgage. The borrower is only charged interest on the credit drawn.

What is a line of credit in terms of a mortgage?

In the context of a home mortgage, a line of credit is a personal finance facility, secured by a mortgage on residential property. The security offered can be changed, as the owner moves to a new home for instance, because the line of credit is made available to the owner and the security for the line of credit is secondary to the line of credit arrangement.

Revolving line of credit home mortgage

A revolving line of credit is an interest only equity home loan facility that has a credit limit, usually about 80% of the home value. The line of credit never has to be paid back [technically] unless the home owner can no longer meet the lender's requirements. Usually the lender requires a borrower to renew the arrangement every 5 years but some lenders let a line of credit go in without requiring this, as long as the loan is kept with the line of credit limit.

The line of credit allows the home to:

Tap the equity of the home for lifestyle or investment purposes. The line of credit can be drawn up to the line of credit.

Make extra repayments to reduce the loan interest. The line of credit borrower is only charged interest on the daily outstanding balance. Any extra repayments reduce the interest charged on a line of credit.

Make repayments in accordance with his or her cashflow, as no repayments are required as long as the line of credit is within the credit limit set.

The line of credit is very useful for small business people who have cashflow ups and downs.