We all know that if you pay your home loan faster – it gets paid off faster. Most people prefer not to make a major commitment in terms of additional repayments. Simply setting a shorter home loan term can also end up with a nasty surprise. If later on you need to reduce repayments in a hurry, you could be facing a full loan application.
So enter the revolving credit, a product which enables the best of both worlds. Make larger repayments when you can, drop the repayments when you can’t. In fact access past additional repayments you made anytime.
How it works
With a revolving credit limit you are charged interest on only what you owe, this is tracked daily. This means that any additional repayments you make over and above the minimum, saves you interest straight away. The added advantage on this product is that you are able to draw out any additional repayments you have made in the past at anytime. The limit shows you the upper amount you can draw to.
A reducing limit revolving credit is where the limit reduces. Only by the amount you would have made in principle repayments on a normal home loan. It tries to get to $0 by the end of the term which is generally 25-30 years.
A non reducing limit stays the same through the term of the loan – currently with most banks this could be 1-5 years from the start. At the end of that period you could ask for it stay non reducing or it will revert to a reducing limit. To keep the limit as non reducing some banks will require an application. Also with some banks, moving further home loan limits from a fixed home loan to non reducing revolving can also mean an application.
