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  • Credit arena: Cards vs. home loans


    When Australians have to make a big purchase or need money in a pinch, more likely than not, they're going to turn to their credit card. According to the most recent figures from the Australian Payments Clearing Association, there were 26.5 million credit cards floating around the country in 2013 – that's more cards than there are Australians!

    What many of these credit-happy Australians aren't aware of is that they don't need to rely on their plastic and rack up a large bill of high interest debt – a unique mortgage solution will do the trick just as well!

    To illustrate this point, we thought we'd pit these two types of credit against each other and see which one is left standing at the end of it all.

    Two types of credit enter, one leaves.Two types of credit enter, one leaves.

    ​Interest rate

    Let's start with the part anyone taking out credit usually looks at first: The interest rate. This is one area where the result is decidedly lopsided in favour of line of credit home loans. Even the lowest rate credit cards generally have purchase rates that sit right around 10 per cent. By contrast, a line of credit loan will have a rate closer to a regular mortgage – in other words, it will be much lower.

    There were 26.5 million credit cards floating around the country in 2013 – that's more Australian credit cards than there are Australians!

    Not only that, but you can have your salary and wages deposited straight into your loan so as to save on interest. 

    Source of the funds

    When you use a credit card, you're borrowing money that you don't have from a faceless credit card company you don't know. While there's nothing necessarily wrong with that, it's nice to know the money you're borrowing has something behind it. With a line of credit home loan, your borrowing limit is based on the equity built up in your home, so you know it's secured against something with real value. 

    Credit limit

    Credit card limits differ depending on the type of card and who it's going to. Generally though, they will sit within a range of $2,000-$5,000. This may not give you the same kind of room to manoeuvre as with a line of credit home loan – your equity could be worth many tens of thousands of dollars, and so could let you do a lot more, such as by taking out a business credit loan. But remember, a large credit limit comes with responsibility – since it's tied to your home loan, you have to make sure you don't go overboard, as it could make paying off your mortgage harder. 

    And remember, if you're simply addicted to swiping your plastic, you may be able to get a card that's tied to your line of credit loan. This way, you get the best of both worlds.

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