Should I get a line of credit?

By Nila Sweeney

A line of credit can be useful. If you have built up a reasonable amount of equity in your home you can easily access it to purchase other assets or items. For example, you could draw down on your home equity to fund a new car.

The benefit of this is that you are effectively borrowing for a car at home loan rates. Interest rates on personal loans or car loans are usually significantly higher than home loan interest rates.

Some share investors also use a line of credit to invest in the share market. When they sell shares they put the money into the line of credit, reducing the balance and increasing the equity they have in their home. When they want to purchase shares, they draw down on their equity.

Using the equity in your home this way can be an effective form of financing because home loan interest rates are the lowest interest rates many people are offered.

One thing to keep in mind is that if you use the equity you have built up in your home to fund other purchases it’s likely to take a lot longer to own your home. This may not necessarily be a bad thing. If you using the money for investments which earn a good return you are likely to increase your net wealth in the long term.