Australian home owners drawing upon revolving lines of credit for their mortgages have dropped off dramatically since the global financial crisis, says leading mortgage broker Priority Lending.
Priority Lending Chief Operating OfficerDean Rushtonsaid latest Australian Bureau of Statistics (ABS) data showed that take up of line of credit home loans was at a 13 year low.
Mr Rushton said the ABS found that in November, 2011, only 3.7 per cent of home loans were revolving line of credit – the lowest number since May, 1998.
He said this was well down on the most recent high of 10.2 per cent for line of credit products in December, 2005.
“Line of credit home loans for residential finance that were more in favour during the early to mid-2000s appear to be headed for the mortgage museum as a result of the GFC,” Mr Rushton said.
“Consumers are using other products with redraw facilities or offset accounts should they need extra money. These products are often free of any additional fees.
“However, the key point here is consumers want to have the one-two punch of having access to additional funds paid and the forced discipline of reducing their loan amount.”
Mr Rushton said the key disadvantage for a revolving credit line is that interest rates were generally 10-20 basis points higher. He said with offset and redraw features, borrowers can access an amount up to the amortized rate of their mortgage.
“This type of transaction ensures that borrows do not fall behind on their original repayment schedule,” he said.
“In most cases, access to additional funds is available without adding to your loan term or repayments. It’s certainly speaks to the shift in both the market and consumer behaviour to see the reduction of revolving lines of credit in the home loan market.”
Mr Rushton said those who are looking at home loan alternatives in 2012 are best off speaking to a mortgage broker.
“Ultimately, a mortgage broker can not only provide a panel of different lenders with competing rates but can walk you through a number of product options that will best fit your personal circumstances.”
Source: Priority Lending
