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    Here’s how to make the most of revolving credit

    No one takes out a mortgage to have it for the rest of their life. The goal is to pay it back as soon as possible. So how do you do that?

    Fixed rate, floating rate, offset mortgage, revolving credit – it’s enough to give anyone sweaty palms. And with so many ways to structure your home loan, it can be overwhelming to choose an option that suits you.

    If you play your cards right, revolving credit could be your ticket to financial freedom. Here’s everything you need to know.

    What is revolving credit?

    Revolving credit is a flexible home loan that acts as a giant overdraft. When you deposit money in your revolving credit account, you’ll offset any interest you pay and it’ll also decrease the overall loan balance.

    So how does that fit into your home loan structure? Let’s say you put 80% of your loan on a fixed rate and 20% in a revolving credit facility. Any funds available to you sit in your revolving credit account in case you need it for things like a home renovation, unforeseen bills or children’s education.

    If you dip into the funds, you’ll pay a daily floating interest rate. The key is to keep the outstanding balance low – so more of your fixed repayment goes towards paying off your principal faster and less goes on interest.

    Getting the most out of your revolving credit

    To enjoy the benefits of revolving credit, you need to work things in your favour. Here’s how.

    Be disciplined
    As tempting as it may be to go and spend up to the limit of your revolving credit facility, you need to be disciplined. If you don’t touch it you won’t pay any interest at all – and you’ll be able to pay your principal home loan off much faster.

    Budget sensibly
    Like with any financial commitment, you should set a strict household budget. That way, everyone knows exactly how much needs to go into the revolving credit account – and how much is left to spend.

    Make a repayment plan
    Unlike a regular home loan, when you add money to your revolving credit, you’re still able to access it. While this offers a fallback in an emergency, you need to plan how you’ll repay the funds. Do the groundwork to make sure all your bases are covered – whatever the scenario.

    Tailor your plan
    To get the most out of revolving credit, you should tailor it to perfectly suit your individual needs. Things like your income, assets and other loans need to be considered. Find a balance that works for your situation – there’s no one-size-fits-all.

    Pay lump sums
    The beauty of revolving credit is that you can pay a chunk down whenever you like – and you won’t face early payment penalties. If you find yourself with some loose change, put it into your revolving credit – it could help to pay your loan back a whole lot faster.

    Have your eggs in different baskets
    It’s sensible to keep your revolving credit account separate from your day-to-day account. That way, you’ll keep tabs on every penny and won’t be tempted to spend your credit on something unnecessary.

    Use a credit card – carefully
    If you can be disciplined about your spending, you could choose to do all your day-to-day spending on a credit card and pay it off each month from your revolving credit. This means you’ll avoid paying interest on your credit card and keep your revolving credit account flush with cash for most of the month.

    Put all your earnings onto your revolving credit
    The more money you have in your revolving credit account at any one time, the less you’ll pay in interest. That means it’s smart to have all your wages paid into your revolving credit facility.

    Get mortgage-free faster with revolving credit

    There’s huge potential for financial gain with revolving credit. If you’re disciplined, plan carefully and have backup systems in place, revolving credit could help to pay your loan back faster. Ready to review your home loan and find out if revolving credit is right for you? Talk to our team today – we’ll help you on your path to financial freedom.

    **These are general guidelines and are by no means a reflection of bank or lending policies