Revolving home loans work like a big overdraft. Your loan becomes your everyday account, so money flows in and out of your loan balance as you get paid and as you spend and pay bills.
Unlike more traditional home loans, there are no set repayments on set dates. You can make repayments whenever you like, for as much as you like.
You can withdraw money again later if you need it (up to your credit limit) – so before getting this type of home loan, ask yourself if you can resist the temptation of dipping into the available credit.
The idea is to save on interest by keeping your revolving credit balance as low as possible. Interest is calculated daily, so try to keep as much money in the account as you can to keep the interest charges as low as possible.
One way of doing this is to use your credit card for your day-to-day spending. This way, instead of money coming out of your revolving credit account daily, it sits in your account longer, coming out in one go when you pay your credit card.
If you’re going to do this, then set up a direct debit from your revolving credit account to pay off your credit card each month. If you pay your credit card bill in full before the due date each month, you won’t pay any interest on purchases.
Generally you will require 20% and this kind of set up won’t suit everybody. Done well, you should save money in interest over the years. But, if it's not managed well, the loan balance won't get paid off.
Only opt for this kind of loan if you’re confident in your budgeting skills and know you won't be tempted to max out your credit limit on unnecessary spending.
For more certainty about your repayments and the rate you’ll pay, you could put some of your loan on a fixed rate and some on revolving credit.