Home equity line of credit

It is a loan facility secured against your property with an approved limit you draw from as required, rather than a lump sum advanced on day one. Interest is charged on what you have drawn. Repayments are usually interest only while the facility is open, so the balance does not reduce on its own.

Redraw returns extra repayments you have already made on an existing loan. An offset is a transaction account whose balance reduces the interest charged. A line of credit is new borrowing against your equity with its own approved limit, so it increases your debt rather than using money you have already paid in.

Yes. Lenders assess a line of credit on the full approved limit rather than the drawn balance, and usually at a rate above the one you would pay. An unused facility therefore reduces your borrowing capacity for a subsequent purchase, which is why the limit should match the purpose.

While the facility is open, repayments are generally interest only, so nothing reduces the balance unless you pay it down deliberately. Some lenders require reductions over time or convert the facility at a set point. A facility with no reduction plan is a balance that stays where it is.

The concept is similar, and the Australian products go by names such as line of credit, equity loan or equity access facility. The terms, the fees and the availability differ by lender here. Fewer lenders write them than did a decade ago, so the comparison matters.

Many investors do, because it keeps a deposit available without holding cash. The facility has to be serviceable at its full limit, which affects what you can then borrow for the purchase itself. Keep the purpose separate from personal spending so your accountant can identify the deductible interest.

Often, yes. A separate loan split advanced for a known amount and repaid over a term does the same job with less room for drift, and lenders generally price it more keenly. A line of credit earns its place when funds are genuinely needed in stages rather than at once.