How does a revolving credit mortgage work?
A revolving credit mortgage is a flexible loan like an overdraft which is secured over your property.
The borrowers (you) have a lot more flexibility than with a standard home loan.
Like an overdraft a revolving credit mortgage is an transactional account with a loan limit. This means you can borrow up to this limit when required, but you are only charged interest on the amount that you borrow on any particular day. Most banks will also charge a monthly account fee with these types of accounts.
Often a revolving credit mortgage will be an interest only loan leaving you to manage the principal repayments on your own. Some banks have the option of a reducing limit on the revolving credit loan which makes it a principal and interest loan.
You will find that most mortgage reduction programmes will include the use of a revolving credit mortgage for at least a small portion of the overall lending. Eat My Mortgage uses a loan structure that includes a revolving credit loan so you can control your repayments and pay your mortgage off faster.
Most mortgage brokers will recommend a revolving credit loan but often they are not used properly.
There are articles that are critical of revolving credit, but it’s typically an issue with how they were set up or how they are used.