A line of credit (LOC) home loan allows eligible homeowners to borrow against the equity in their property, up to a limit approved by their lender. Unlike a standard home loan, where you receive a lump sum and make scheduled repayments, an LOC generally allows you to draw funds as needed within an approved credit limit.

LOC home loans are relatively uncommon in Australia, and not all lenders offer them. They may suit borrowers who need access to funds at different times, such as for staged renovations or investment expenses. However, this flexibility can come with higher costs and the risk of carrying debt for longer.

Before considering an LOC, it's worth comparing it with other ways to access home equity, including a home loan top-up or cash-out refinancing.

A line of credit home loan is a revolving credit facility secured against residential property.

The lender approves a credit limit based on factors such as your available equity, income, expenses and existing debts. You can then draw funds up to that limit, subject to the facility's terms.

Interest is generally charged on the outstanding balance rather than the full approved limit.

Unlike a standard principal-and-interest home loan, an LOC may not require regular principal repayments. Depending on the product, you may need to pay interest as it falls due, or the lender may allow interest to be added to the outstanding balance while it remains within the approved limit.

This flexibility also means the debt may not reduce unless you actively repay it.

ASIC's Moneysmart guide to choosing a home loan explains that additional loan features can increase costs. Borrowers should therefore compare the interest rate and fees against the benefits of the facility.

An LOC should not be confused with an offset account. An offset account allows you to use your savings to reduce mortgage interest, while an LOC provides access to borrowed money secured against your property.

For more on conventional mortgage features, see Bheja's guide to offset accounts versus redraw facilities.

Suppose your home is worth $900,000 and you have $400,000 remaining on your mortgage.

Your total equity would be:

$900,000 − $400,000 = $500,000

However, having $500,000 in equity doesn't mean you can borrow that amount.

Lenders generally limit how much you can borrow against a property's value. If a lender allows total borrowing up to 80% of the property's value, the calculation would look like this:

Based on an 80% loan-to-value ratio (LVR), you could potentially access $320,000 in usable equity.

However, this doesn't mean a lender will approve you to borrow the full amount. Your borrowing capacity, the lender's property valuation and its lending criteria will determine how much you can actually access.

For more information, see Bheja's guide to cash-out refinancing and home equity.

Suppose your lender approves a $100,000 line of credit for renovations.

Rather than borrowing the entire amount upfront, you draw $30,000 for the first stage of work and another $20,000 when the next stage begins.

You would generally pay interest only on the amount drawn, subject to the product's terms.

For example, at an illustrative interest rate of 7% p.a.:

These figures assume a constant balance throughout each 30-day period, use a 365-day year and exclude fees.

The actual cost would depend on your interest rate, daily outstanding balance and lender's interest calculation method.

If the facility allows interest to be capitalised and you don't make repayments, the outstanding balance could increase over time.

Line of credit home loans remain available through some Australian lenders, although the range of products is more limited than for standard home loans.

Traditional LOC mortgages sometimes combined mortgage borrowing and transaction account functionality. However, borrowers should not assume that every LOC available today offers these features.

Some facilities are designed specifically to provide access to home equity rather than operate as everyday transaction accounts.

Product features can vary between lenders, including:

• Whether the facility operates as a separate loan or forms part of an existing mortgage.
• Whether interest payments are compulsory.
• Whether the credit limit reduces over time.
• Whether repaid funds can be withdrawn again.
• Whether the lender charges ongoing facility fees.

Before applying, check whether the lender currently offers an LOC and how its terms compare with other ways to access equity.

An LOC may be worth considering when you have sufficient equity, a clear borrowing purpose and a plan to repay the money.

If you're renovating your home over several months, you may need funds at different stages.

An LOC could allow you to draw money as expenses arise rather than borrowing the entire amount upfront.

However, some lenders offer construction or renovation loan arrangements with progressive drawdowns. A standard home loan top-up may also be suitable, particularly if you know how much you need to borrow.

The right option depends on the borrowing amount, project timeline, interest rate and repayment terms.

Some property investors may consider an LOC to access equity for investment-related expenses.

For example, funds could be used towards an investment property deposit or other eligible investment costs.

However, borrowing for investment purposes requires careful planning.

The Australian Taxation Office's Taxation Ruling TR 95/25 explains that the deductibility of interest generally depends on the use of the borrowed funds.

This means securing a loan against an investment property does not automatically make the interest tax-deductible.

Mixing personal and investment expenses within the same credit facility can also complicate interest deductions. Consider obtaining tax advice before using an LOC for investment purposes.

An LOC may also appeal to borrowers who expect to need funds at different times but cannot determine the exact amount or timing upfront.

However, ongoing access to credit can make it easier to accumulate debt.

Borrowers should consider whether the flexibility justifies the interest rate, fees and repayment structure.

If your goal is to access equity in your property, an LOC is only one option.

Depending on your circumstances, you may also be able to increase your existing mortgage through a home loan top-up or refinance to another lender and borrow a larger amount.

These options are not interchangeable, and availability depends on the lender and your circumstances.

A home loan top-up allows you to apply to increase the amount borrowed under your existing mortgage.

It may be worth considering if you need a specific amount for a one-off expense, such as a renovation, major purchase or investment property deposit.

For example, if you owe $400,000 on your mortgage and need another $50,000 for renovations, your lender may agree to increase your total borrowing to $450,000, subject to its lending criteria.

Unlike an LOC, a standard principal-and-interest top-up generally comes with scheduled repayments, which help reduce the additional debt over time.

Some lenders may also allow you to keep the additional borrowing separate from your original mortgage. This can make it easier to track the additional debt, particularly when the funds are used for a different purpose.

However, extending the loan term or increasing the balance can raise your total interest costs.

Cash-out refinancing involves replacing your existing mortgage with a larger loan and accessing the difference, subject to lender approval.

For example, you might refinance a $400,000 mortgage into a $450,000 loan and access an additional $50,000 in equity, less any applicable costs.

Unlike a top-up, which involves applying for additional borrowing with your existing lender, refinancing allows you to compare home loans from other lenders.

This may be worth considering if your existing interest rate is no longer competitive or your current lender cannot accommodate the additional borrowing.

However, a lower interest rate doesn't automatically mean refinancing will save you money.

You need to consider discharge fees, application costs, any break costs and the effect of the new loan term.

ASIC's Moneysmart guide to switching home loans recommends comparing the benefits of refinancing against the costs, including any increase in total interest from extending the loan term.

For more information, read Bheja's guide to cash-out refinancing.

The main attraction of an LOC is flexibility. The main risk is that the same flexibility can make debt harder to manage.

With a standard principal-and-interest mortgage, scheduled repayments gradually reduce the amount owed.

An LOC may not have the same compulsory principal repayment structure.

If you only pay interest, your balance could remain unchanged for years. If the lender permits interest capitalisation, the debt could increase.

LOC products may have different interest rates and fees from standard home loans.

Even if you only pay interest on the amount drawn, a higher rate or ongoing facility fee could make the borrowing more expensive.

Compare the total cost of the facility, not just its flexibility.

Having access to an approved credit limit can make it easier to use funds for expenses that weren't part of your original borrowing plan.

Unlike spending from a savings account, every additional drawing increases the amount you owe.

An LOC secured against your property carries the same fundamental security risk as other mortgage borrowing.

If you cannot meet your obligations, the lender may ultimately take enforcement action against the property.

Depending on the loan terms, lenders may review or reduce an LOC limit.

Some facilities may also have an expiry date or require the outstanding balance to be repaid or refinanced at a particular time.

Check these conditions before relying on ongoing access to the facility.

Applying for an LOC generally involves a credit assessment similar to other forms of residential mortgage borrowing.

Lenders typically consider your:

• Income and employment circumstances.
• Living expenses and existing financial commitments.
• Credit history.
• Property value and available equity.
• Ability to service the proposed borrowing.

For banks subject to APRA's housing lending standards, serviceability assessments generally incorporate an interest rate buffer of at least three percentage points above the loan rate, subject to applicable requirements and exceptions.

APRA's May 2026 policy update confirmed that the mortgage serviceability buffer would remain at three percentage points.

This means having sufficient equity alone may not be enough to qualify.

Lenders may also assess your borrowing capacity against the full approved credit limit, rather than the amount you initially intend to draw.

For example, if you apply for a $100,000 LOC but plan to use only $30,000 initially, the lender may assess your ability to service the entire $100,000 facility.

Assessment methods differ between lenders, so it's worth checking how the proposed limit will affect your borrowing capacity.

You can use Bheja's borrowing capacity calculator to get an initial estimate of how much you may be able to borrow. However, the result is not an LOC approval or a product-specific assessment.

Before choosing an LOC, consider whether the facility provides a benefit that justifies its costs and risks.

1. Define your borrowing purpose

Work out how much you need, when you'll need it and whether you expect to draw funds more than once.

If you need a fixed amount for a one-off expense, a standard home loan top-up may be simpler.

2. Compare interest rates and fees

Check the interest rate, ongoing facility fees, establishment costs and any charges for maintaining access to the credit limit.

Compare these with the total costs of alternative borrowing arrangements.

3. Understand the repayment requirements

Find out whether you must make interest payments, principal repayments or both.

If principal repayments aren't compulsory, calculate how much you would need to repay regularly to clear the debt within your preferred timeframe.

4. Check the credit limit conditions

Ask whether the lender can reduce the limit, whether the facility expires and what happens when the approved term ends.

5. Consider the impact on your existing mortgage

Additional borrowing increases your overall debt.

Check how it could affect your repayments, loan-to-value ratio and ability to refinance in the future.

6. Compare other ways to access equity

A home loan top-up or cash-out refinance may provide the funds you need without the ongoing revolving credit structure.

The most suitable option will depend on the amount required, your borrowing capacity and the total cost of the loan.