A line of credit can be very handy for people with income or expenses that vary significantly from month to month or have seasonal income fluctuations.
The amount owing on it can go up and down according to what you draw out and pay in. You can even go for a period of time without making any payments on it as long as you stay within its total capacity.
Interest is only charged on the amount owing.
A line of credit can be very handy for people with income or expenses that vary significantly from month to month or have seasonal income fluctuations. Instead of letting the balance of your credit card go sky high with a run of high expenses and “pay through the nose”, you can utilise the line of credit facility and just pay normal home loan rates.
A line of credit can also be handy for investment purposes to be able to quickly access equity from a property and put it to use for investment purposes. However, the tax office has recently cautioned people about capitalising interest in a line of credit and trying to claim the extra tax deduction from it. That’s where people use a line of credit to purchase an investment, but don’t pay the interest on it. The line of credit allows the amount owing to creep up each month, and that makes the interest go up each month. The tax office has alerted people that they are not happy with that arrangement. The interest should be paid if it’s for investment purposes. Naturally you should seek professional tax advice that takes into account your own personal circumstances before adopting any tax management strategy.