A line of credit home loan is a revolving loan secured by your property. You get a limit, draw on it when you need to and pay interest only on the balance you use. Repayments are usually not required while the balance stays within the limit, so the debt does not shrink unless you pay it down yourself.

How does a line of credit work?

  • A limit against your equity. The lender sets a limit based on your property’s value, your other borrowing and what you can afford.
  • Draw and repay as you like. Money you repay can be drawn again, much like a credit card, but at a home loan rate.
  • Interest on the balance only. Interest is charged on what you have drawn and added to the loan each month.
  • No set repayment schedule while the balance is within the limit, which is the feature to watch most closely.
  • A review date. Many facilities have a term or review date, after which the lender can reduce the limit or ask for it to become an ordinary loan.

How does it compare with redraw, offset and a top-up?

Four ways to get at money in your home
Option How it works Main catch
Line of credit A revolving limit you draw on and repay as you like No forced repayments, so the balance can sit there for years
Redraw Take back extra repayments you made on your loan Only what you have paid ahead, and lenders can limit it
Offset account Your savings reduce the interest on the loan It is your money, not extra borrowing
Top-up loan Increase the loan or add a split with set repayments A new application, but the debt is repaid over a term

The article on top-up loans versus refinancing covers the last option in detail.

What does a line of credit cost?

At the 6% example rate, $40,000 drawn costs about $200 a month in interest. The part of the limit you have not drawn costs no interest, though some facilities carry an annual or package fee. The real cost shows up over time:

$40,000 over five years at 6%
Interest only on a line of credit Principal and interest over 25 years
Monthly payment About $200 About $258
Paid over five years About $12,000 About $15,460
Still owed after five years $40,000 About $35,970

Paying only the interest keeps the monthly cost low, but after five years you owe exactly what you drew. If you pay nothing at all, the interest is added to the balance, so the debt grows towards the limit.

How do lenders assess a line of credit?

Usually as if the whole limit is drawn, with repayments calculated on the full amount. That means an unused limit still reduces how much you can borrow elsewhere, in the same way a credit card limit does. If you plan to apply for another loan, a smaller limit can help. The borrowing power calculator shows the effect of existing commitments.

When can a line of credit make sense?

  • Renovations in stages, where you pay trades as the work progresses. Home renovation loans compares the options.
  • Irregular income, where a self-employed borrower wants a buffer for slow months. Self-employed lending covers how lenders read that income.
  • Investing, where a separate facility keeps the investment borrowing apart from your home loan. Debt recycling explains why that separation matters for tax.

What are the risks?

  • The debt does not reduce on its own. Without a repayment plan, a line of credit can last for decades.
  • Spending creep. Easy access makes it easy to fund everyday costs with secured debt.
  • Variable rates. The rate can rise, and the interest compounds if you are not paying it.
  • The limit can be cut. A lender can reduce or freeze the limit, for example at a review or if your property’s value falls.

Is the interest on a line of credit tax-deductible?

Only for the part of the balance used to produce income, such as buying an investment. The ATO’s ruling on line of credit and redraw facilities, TR 2000/2, follows each drawing: money used privately makes that part of the interest non-deductible, and a mixed balance has to be apportioned. If you plan to invest, a separate facility used only for that keeps the records clean. Ask a registered tax agent about your own situation.

Is a line of credit easy to get?

Not every lender offers one, and those that do set their own limits, rates and rules on how the facility is assessed and reviewed. You will need enough equity and enough borrowing power for the full limit. The home equity calculator gives a first estimate of the equity you could use.

How do you keep a line of credit under control?

  1. Decide what it is for before you draw on it, and keep it for that purpose.
  2. Set a regular repayment, even though it is not required.
  3. Ask for the limit to be reduced when the project is finished.
  4. Convert the balance to a principal and interest loan if it is still there after a set time.

Questions people ask

Do I have to make repayments on a line of credit?

Usually not while the balance is within the limit, but interest is added to the loan each month, so the balance grows if you pay nothing.

Can I use a line of credit to buy another property?

It can fund the deposit and costs if the lender approves it for that use. The new purchase is then assessed on top of the full limit. Using equity to buy covers the usual structures.

Is a line of credit the same as an equity loan?

It is one kind. An equity loan can also be a top-up or a separate split with set repayments. The line of credit is the revolving version.

Charles Touma compares a line of credit with a top-up, a split or a refinance on your numbers, and sets the limit at what you actually need. A free 30-minute call covers your equity and the best way to use it. General information only, not credit advice. Sources: Moneysmart (ASIC), line of credit loan; ATO Taxation Ruling TR 2000/2 on interest for line of credit drawings, checked 17 October 2026. Example figures use the 6% example rate.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.