Jump to content


Photo

Line of credit loans


  • Please log in to reply
6 replies to this topic

#1 ~steph~

~steph~

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 4,759 posts

Posted 28 April 2010 - 01:31 PM

We are looking at increasing our mortgage do some huge renos. In a conversation with a financial adviser they suggested that a line of credit loan might be our best solution. Does anyone know anything about them??
We kind of get how they work, however both hubby and I have heard negative things about them but never the detail on the negatives.
We are very good with managing our money so we aren't worried about spending stupidly.
<a href="http://lilypie.com/"><img src="http://lbym.lilypie....om/VvgOp10.png" width="200" height="80" border="0" alt="Lilypie Kids Birthday tickers" /></a> <a href="http://lilypie.com/"><img src="http://lb5m.lilypie....om/MANwp10.png" width="200" height="80" border="0" alt="Lilypie Fifth Birthday tickers" /></a>>

#2 kisma

kisma

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 6,649 posts

Posted 28 April 2010 - 01:53 PM

To get ours we had our properties valued and then could borrow the amount that they had gone up. Ie if we bought our house for $200000 and then when it was revalued for $210000 they let us have a line of credit for $10000. We used it to buy a car (cheaper interest rate than a car loan and we just made sure we paid the amount that would need to pay it off over 5 years rather then the length of the house loan which was 23 years i think. We also used some for renos before we sold.

I love having it. You only get charged interest on the amount of it that you use, so if you use only $2000 thats all you pay interest on. One of the downsides is obviously using on silly things that arent needed. Its quite easy to access. And obviously ou could end up paying off for the rest of your house loan which could amount to a huge amount of interest. Its like any borrowed money really, you need to be careful with it.
<a href="http://lilypie.com/"><img src="http://lb2f.lilypie....om/uBccp11.png" width="400" height="80" border="0" alt="Lilypie Second Birthday tickers" /></a>

<a href="http://lilypie.com/"><img src="http://lb1f.lilypie....om/d45Kp11.png" width="400" height="80" border="0" alt="Lilypie First Birthday tickers" /></a>

<a href="http://lilypie.com/"><img src="http://lbdf.lilypie....om/S5yfp10.png" width="400" height="80" border="0" alt="Lilypie Pregnancy tickers" /></a>

#3 beachgurl

beachgurl

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 3,530 posts

Posted 28 April 2010 - 02:53 PM

The only real downsides of a line of credit is that it might be slightly more difficult to obtain the loan and some of the lenders charge higher fees and/or interest rate to cover the fact that you won't be withdrawing all of the money when it is offered to you so they can't make the same sort of profit as they would if you were purchasing a place.

the other alternative is just to obtain an increase on your loan for the amount you need to renovate. If you have an offset account, the loan funds can sit in there so you are not paying interest on the funds you have not yet used. The interest rate might be slightly lower and should have less fees. Depending on what lender you are with and what the ratio between the loan amount and the value of the home will be, is how easy it will be to get the increase without needing to provide evidence of what the funds will be used for. Some lenders don't ask, while others will only ask if the total value of the loan is over 75% of the house value.

I guess the only other downside of a line of credit is if you want to borrow more funds for another purpose. Regardless of how much of the loan is paid down, the total debt against you will be for the entire loan amount, as you have the ability to increase your loan amount back to the original loan amount without filing a new request from the bank. It's only really an issue if you are looking to buy an investment property or something else of high value.

#4 ~steph~

~steph~

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 4,759 posts

Posted 28 April 2010 - 03:03 PM

Thank you both kisma and beachgurl.

We want to do owner builder for the renos which our bank doesn't really like so they just make getting the progress payments more than a little painful!!! Also we don't 100% know how much we are going to need, although they have already told us they can lend us the max amount we really want to borrow. Thankfully fees don't come into it as I am an employee so don't pay any, although the interest rate is slightly higher, the convenience factor is what is swaying us to going for it.

Thanks for the extra info on the total amount going against our names if we want to borrow more money later. That is something to consider. Man this is so hard!!!!
<a href="http://lilypie.com/"><img src="http://lbym.lilypie....om/VvgOp10.png" width="200" height="80" border="0" alt="Lilypie Kids Birthday tickers" /></a> <a href="http://lilypie.com/"><img src="http://lb5m.lilypie....om/MANwp10.png" width="200" height="80" border="0" alt="Lilypie Fifth Birthday tickers" /></a>>

#5 -Sophie-

-Sophie-

    Centurion

  • avid user
  • PipPipPipPipPip
  • 1,804 posts

Posted 28 April 2010 - 08:06 PM

A line of credit is a good option for owner builders.

Its an easier way to obtain the money you want with out paying interest on the funds you dont require straight away.

Lines of credit can be dangerous as if you spend it on things you dont need you can end up in debt without anything to show for it.

Another thing to consider is if you will have the spare cash for repayments on a loan if you go for a straight loan. There are no minimum repayments or any repayments required on a line of credit. The interest just gets taken out of the line of credit. This can be helpful as it means not finding the extra repayments when you probably dont have extra cash floating around.

Once you have finished the renos you can always refinance back to a normal loan - if your not comfortable with the line of credit.

Good luck.
<a href="http://lilypie.com/"><img src="http://lb1m.lilypie....com/igUop8.png" width="200" height="80" border="0" alt="Lilypie First Birthday tickers" /></a>
Married 5/2/6
Abby 29/2/8
Naomi 2/8/11

#6 ~steph~

~steph~

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 4,759 posts

Posted 29 April 2010 - 08:46 AM

Thanks Sophie... Wow I didn't know you could make the repayments out of the line of credit blink.gif , no wonder people get into trouble with them!!!


<a href="http://lilypie.com/"><img src="http://lbym.lilypie....om/VvgOp10.png" width="200" height="80" border="0" alt="Lilypie Kids Birthday tickers" /></a> <a href="http://lilypie.com/"><img src="http://lb5m.lilypie....om/MANwp10.png" width="200" height="80" border="0" alt="Lilypie Fifth Birthday tickers" /></a>>

#7 kisma

kisma

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 6,649 posts

Posted 29 April 2010 - 10:55 AM

QUOTE(~steph~ @ Apr 29 2010, 08:46 AM) View Post

Thanks Sophie... Wow I didn't know you could make the repayments out of the line of credit blink.gif , no wonder people get into trouble with them!!!

This is probably the biggest problem with them. If you are going to go ahead with it maybe set up a direct debit every pay.

If you think you will pay any amounts you borrow out in say the next three years (or whatever really) it can be a good way to go. You arent going to be charged any penalties by paying it all out, not with our bank anway. And you can always then opt to decrease it or get rid of it completely so you are just back to your mortgage only, this way no problems if you need finance for something else.
<a href="http://lilypie.com/"><img src="http://lb2f.lilypie....om/uBccp11.png" width="400" height="80" border="0" alt="Lilypie Second Birthday tickers" /></a>

<a href="http://lilypie.com/"><img src="http://lb1f.lilypie....om/d45Kp11.png" width="400" height="80" border="0" alt="Lilypie First Birthday tickers" /></a>

<a href="http://lilypie.com/"><img src="http://lbdf.lilypie....om/S5yfp10.png" width="400" height="80" border="0" alt="Lilypie Pregnancy tickers" /></a>




0 user(s) are reading this topic

0 members, 0 guests, 0 anonymous users