Revolving home loans

A revolving home loan is sometimes called a line of credit or revolving credit mortgage. It’s like having a large overdraft. The idea is to help save on interest by keeping the daily balance of your loan as low as possible.

You can do this for example by direct crediting all your income into the account and then paying your bills and everyday expenses from the account as you need to. Revolving home loans have a floating (or variable) interest rate. Some people will mix and match by having some of their borrowing on a fixed interest rate mortgage and some on a revolving home loan.

Here’s how it works
The interest is calculated on the daily balance of your account, so by keeping the loan as low as you can, for as long as you can, you should pay less interest. You have the option of making lump-sum repayments and if you need the money again, you can redraw up to your limit at any time. Some revolving home loans have a credit limit that steadily decreases to help you stay on track to the day you’ll be debt free. As these are also transaction accounts the usual bank fees can apply for things like deposits, withdrawals and setting up an automatic payment.

For and against
For: If you’re good at controlling your finances you can repay your home loan sooner. If your income is uneven, a revolving home loan may be best for you, because there are nofixed repayments but (depending on the product you select) your limit might reduce each month. You can help save on interest by putting spare money into this account instead of a savings account.

Against: You need self-control. If you keep borrowing up to your credit limit you’ll end up paying interest on the full loan amount year after year.