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Revolving credit mortgages

A revolving credit mortgage offers more flexibility with the chance to substantially reduce your interest charges.

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A revolving credit mortgage is a type of home loan that allows you to access funds easily and have more flexibility on when you pay back your loan.

Another benefit of a revolving credit mortgage is that you can redraw money when you need to up to your approved credit limit. You can use the equity that you have built up to consolidate debts or make large purchases with a lower interest rate.

How does it work?

Typically when you take out a mortgage you have a separate loan account you make regular payments into to reduce the loan balance. With a revolving credit mortgage, you have one account that is similar to a large overdraft with a floating interest rate.

Think of a revolving credit mortgage as your everyday account. Your salary is credited into this account and you pay your expenses and living costs like normal.

By having all of your income deposited into this account your interest charges can be reduced. This is because interest is calculated daily on the outstanding balance, so the more money you have in your account, the less interest you’ll pay.

With no fixed repayment period and ability to withdraw more credit, you have flexibility on when you pay your loan off. You can make repayments based on your loan limit or any minimum repayment requirement that has been set by your lender.

Who is a revolving credit mortgage right for?

This type of mortgage can be useful for people that don’t have regular income such as self-employed or those that earn commission income. Some revolving credit loans can be set up to have a reducing limit which may be useful if you want to keep on top of your repayments.

It’s important to note that a revolving credit mortgage is not for everyone. You need to be disciplined with how you use it since you can withdraw money when you need to and you have no set repayments like traditional home loans.

If you keep withdrawing money or only making small repayments to reduce the loan, it could take you a lot longer to pay off the loan.

Some lenders will allow you to split your mortgage with a portion on revolving credit and the rest on a fixed rate.

How do I compare revolving credit mortgages?

  • Interest rates. Revolving credit mortgages always have a floating interest rate and a lower interest rate will reduce your overall repayment amount. Rates can vary so compare rates from different lenders and use a repayment calculator to get an idea of what you will be expected to pay.
  • Fees. Some lenders charge fees for revolving credit mortgages so make sure to check what fees could apply to you.
  • Reducing or non-reducing. Most banks give you the option of having a reducing loan so that your loan limit gets smaller over time. This feature can be useful with repaying the principal on your loan.

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