Browse Forums Home Finance 1 May 06, 2009 2:57 pm Hi Guys I was just wondering if anyone has tried paying their mortgage off using the "Line of Credit" method. We have been advised to do this by a financial planner as a quicker way to pay off our mortgage. We are both very disciplined in our spending but am a bit nervous as i have always just used the "normal" way if that's what you call it where they just direct debit the payment from our account. Thio - any advice or more info on exactly how it works or what to be careful of??? Thanks heaps! Re: Line of Credit to Pay Mortgage 2May 06, 2009 3:06 pm Think of it like a credit card with a really really big limit. I wouldn't say it's a quicker method of paying off your mortgage at all, unless you're prepared to deposit extra money into it, as per a "normal" mortage. Really, a line of credit is likely to provide similar benefits to an offset account, with the downside (well, to me!) than you never have a positive bank balance. I hated the idea of never having any actual money, just debt. We chose to deposit both salaries into an offset account which has the same affect as if we were to deposit it all into a line of credit account. Am i making any sense? Ploughing on... A financial advisor would like a line of credit, because once you'd paid off a significant portion of the balance, you can then use the available credit for other things (again, think of it like a credit card). You can renovate, buy an investment property, buy a share portfolio (<< this is the one the financial advisor would be thinking of) without needing to apply for a new loan and pay application fees etc etc. Ultimately, if you want to do these things, then maybe it's for you. If it's your financial advisor who wants you to do these things, then you may be better off with an "normal" mortgage. Re: Line of Credit to Pay Mortgage 3May 06, 2009 3:36 pm Line of credit loans were heavily pushed a few years ago but didn't work for many people. I prefer to see where my money is - ie to see my loan going down each month, to see my saveings separate and my pay separate and I have always gone with the option of a mortgage with a re-draw facility - you can make extra payments or even deposit large lump sums, knowing you can re-draw them if you need to, but at the same time considering the money "gone" - away from your available everyday spending - IMO its very hard to budget, especially if you have a fluctuating income like us, if money is all muddled together in a line of credit. We have been offerred lines of credit by our credit union (to be fair, I dont think there's anything more in it for them ) but have always declined. Re: Line of Credit to Pay Mortgage 4May 06, 2009 3:53 pm I've had a full line of credit mortgage...swapped over from an offset account...and wholeheartedly agree with Helyn. Budgeting requires a lot of discipline as you don't see your loan balance go down appreciably and it makes it very hard to see the end game. As part of my recent refinancing as part of a home move I reduced the line of credit down to about $40k and have a separate home loan account. I pour just about everything into the loan and make sure the line of credit hovers around zilch kind of a pseudo-offset account. However, the one year anniversary is about up on my loan and I'm considering reverting to an offset account to simplify things a bit. mmm....donuts Homer Simpson 1956- Links: Site Costs Ready Reckoner | H1 Addiction Medical Advice | Château TDL: The Backyard Re: Line of Credit to Pay Mortgage 5May 07, 2009 8:43 am Thanks Nicoletta, Helyn and to_do_list for your thoughts on this. I think we will give it a go for 2 years and see how it goes but if things start looking a bit messy and not look like we are getting anywhere we will just set up an offset account. I think the financial adviser has recommended this because down the track we do want to purchase an investment property. We finally have our tender appointment on 6 July and contract appointment on 28 July with PD can't wait! Just need these developers to hurry up and get our land ready for settlement in September! Bel Re: Line of Credit to Pay Mortgage 6May 07, 2009 11:43 am Quote: I think the financial adviser has recommended this because down the track we do want to purchase an investment property. There is no reason you cannot use redraw facility on your first mortgage to put down a deposit on an investment property. We did this when we bought an investment property a few years back. If it suits you to use a line of credit loan, do so, but that seems a strange reason given by your advisor Re: Line of Credit to Pay Mortgage 8May 07, 2009 3:58 pm We had one a few years ago and we are very disciplined and stick to a strict budget. But I found it too hard to keep track of and it felt like we were going nowhere. We changed back to a variable loan with an offset account which made life a lot easier. We still use the same system by using the creditcard for all monthly expenses and leave our salaries in the offset account, then pay the CC in full each month. I am thinking about getting rid of the CC now as we still manage to spend too much each month Blog: http://bluemistkids.blogspot.com "Never be afraid to try something new. Remember, amateurs built the ark, and professionals built the Titanic." Re: Line of Credit to Pay Mortgage 9May 07, 2009 4:23 pm I am starting to have doubts on it now. I wasn't keen on doing it in the first place when the adviser suggested it and because i like to know exactly where our money is going so that makes me feel like i am in control of our finances but I said we would give it a go. Although, we wouldn't be starting to use it until September when our house settles and that month our land will settle. Hels i think i prefer the way you which is basically the same but not giving you that line credit readily available. Re: Line of Credit to Pay Mortgage 10May 07, 2009 8:24 pm Helyn Quote: I think the financial adviser has recommended this because down the track we do want to purchase an investment property. There is no reason you cannot use redraw facility on your first mortgage to put down a deposit on an investment property. We did this when we bought an investment property a few years back. If it suits you to use a line of credit loan, do so, but that seems a strange reason given by your advisor If you use the redraw facility on your first mortgage to put down as a deposit on an investment property, you are going to cause major headache for your accountant as he/she will have to sort out which part of the mortgage is tax deductible (for the investment property) and which is not tax deductible (owner-occupied). What i would be doing (for my situation) is to have a normal mortgage with an offset account for your own home and apply for a line of credit loan for the deposit on the investment property. The line of credit loan + the mortgage will be secured by your own home. Cheers Re: Line of Credit to Pay Mortgage 11May 07, 2009 10:29 pm Quote: If you use the redraw facility on your first mortgage to put down as a deposit on an investment property, you are going to cause major headache for your accountant as he/she will have to sort out which part of the mortgage is tax deductible (for the investment property) and which is not tax deductible (owner-occupied). Yes, this is true -you can obviously only claim tax deductions on the interest which 'belongs' to the investment property - but our tax agent managed to to do it, we did this for 6 years and didn't have any problems with this arrangement. We even redrew further for a car part way through - tax agent coped with that too , must of reached for the panadol packet when he saw our name in appointment diary Re: Line of Credit to Pay Mortgage 12May 07, 2009 10:34 pm Helyn Yes, this is true -you can obviously only claim tax deductions on the interest which 'belongs' to the investment property - but our tax agent managed to to do it, we did this for 6 years and didn't have any problems with this arrangement. We even redrew further for a car part way through - tax agent coped with that too , must of reached for the panadol packet when he saw our name in appointment diary My accountant even suggested different line of credit account for investment property and share investment so that it would make his life easier but i reckon it would make my paper work / filing a bit more complicated. Cheers Re: Line of Credit to Pay Mortgage 13May 12, 2009 10:32 am Helyn Quote: I think the financial adviser has recommended this because down the track we do want to purchase an investment property. There is no reason you cannot use redraw facility on your first mortgage to put down a deposit on an investment property. We did this when we bought an investment property a few years back. If it suits you to use a line of credit loan, do so, but that seems a strange reason given by your advisor The reason would be that you can redwraw the whole mortgage amount with a line of credit. With an offset mortgage, you can only redraw what you've overpaid. If you want to buy an investment property, you have to apply for a new mortgage. Re: Line of Credit to Pay Mortgage 14May 12, 2009 10:50 am We could re draw 80% of house value for an investment property (or anything, I think), minus what we still owed. In our case this was more than enough as we had held the original property for many years, value has risen substantially and we owed very little Investment property was worth aprox half the value of our original house. Obviously all financial institutions are different. Re: Line of Credit to Pay Mortgage 15May 12, 2009 11:44 am Nicoletta - in relation to being able to have access to the whole line of credit i did query this because i don't won't it and the adviser said he could cap it to make it we only have access to say $20/30k so that made me not so nervous. Line of Credit advice to Pay Mortgage 17May 12, 2009 4:50 pm Bel & Ben Hi Guys I was just wondering if anyone has tried paying their mortgage off using the "Line of Credit" method. We have been advised to do this by a financial planner as a quicker way to pay off our mortgage. We are both very disciplined in our spending but am a bit nervous as i have always just used the "normal" way if that's what you call it where they just direct debit the payment from our account. Thio - any advice or more info on exactly how it works or what to be careful of??? Thanks heaps! Some of the home owners I see to assess their home loan have the set up you were recommended. They have no idea why they do not seem to get ahead in paying off the mortgage. Unfortunately that system has been used aggresively as a customer retention tool and years after taking out the loan, customers haven't got a clue how it was supposed to work to their advantage and clearly it doesn't (those I have seen anyway). It can work for you, if you are one of those budgeters who like to spend their Saturday nights fine tuning their annual family budget spreadsheet. Hi Mofflepop, I would recommend finding a building designer to prepare plans, they should design to your specified budget. 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