To every positive side there is always a negative one that you must be aware of.

The Negative Side To The LOC- If you like spending your money and cannot control your spending, then I would recommend that this facility is not for you.
 

But for people that have a strong hold on their spending money and can police their spending, then this may save you thousands of dollars on your loan.

 

Remember that your home mortgage is calculated daily and interest is accumulated everyday and is added to your loan, so what actually happens is that you end up paying interest on the interest.




Now this is how you can use the LOC to your advantage.

Your wages are paid directly into the LOC, so straight away you have decreased the amount of your loan. You start saving on interest and pay off principle instead.

A big part of this is how often you get paid. If you are paid weekly
or fortnightly this would be perfect for you, however if you're paid monthly, the effect wouldn't be as noticeable.

So when your pay goes straight into your LOC (home loan), meaning you have no cash sitting in some savings account earning next to nothing (and if you made interest on it you would need to pay tax against it as it is considered an income).

You use your Credit Card for purchases, bills and other household expenses. You can include a debit card to take cash out if you want, a cheque book if necessary or you can organise a direct debit of (for example) $100 to go straight into a savings account.

This will be for the little things you can't purchase with a credit card and also to have cash in your pocket.

Talk to your Bank or Finance Broker. If you need one I can recommend a couple of specialists in this field.

At the end of the month when the Credit Card needs to be paid off, you can allow an automatic debit against your home loan or you can do it manually yourself to pay the credit card off.

So this is what you have done... you have used your money to reduce your home loan, to save interest and you have used other peoples money (credit card) to pay your bills.

That is basically how LOC works.

I have saved clients thousands of dollars with the LOC.

When clients purchase an investment property through us, I get the finance company or bank to do a LOC using the Investment Property rent. I then arrange for my clients to claim their tax back weekly from the Investment Property, therefore all cash is deposited straight into their home loan, saving them thousands of dollars.