Revolving Credit Mortgage
A revolving credit mortgage blurs the line between a home loan and a transaction account. Instead of a fixed repayment schedule, your mortgage functions like an overdraft facility with a credit limit. Your salary and any other income are deposited directly into the account, reducing the outstanding balance (and therefore the interest charged) on a daily basis. You can then draw funds back out as needed, up to the approved limit.
Because interest is calculated daily on the outstanding balance, the more money you keep sitting in the account, the less interest you pay. A borrower who consistently runs a high balance in the account, for example someone who earns well but spends modestly, can pay off a revolving credit facility significantly faster than a traditional mortgage, and pay considerably less total interest in the process.
The flipside is discipline. Without a fixed repayment obligation, there is nothing stopping you from drawing back up to the limit whenever you want. Borrowers who are not diligent about managing the balance can end up paying more interest than they would on a standard mortgage, or worse, not reducing the balance at all. Revolving credit mortgages suit organised, high-income borrowers with good financial habits.
The interest rate on a revolving credit facility is typically floating, which is generally higher than available fixed rates. The benefit comes from reducing the daily balance as much as possible. If you lack the financial discipline to keep the balance low, a revolving credit facility can end up costing more than a standard P&I loan. Lenders will assess your income, expenses, and financial habits carefully before approving this structure.
See how this affects your numbers
Run the mortgage calculator to see how revolving credit mortgage plays out in your specific situation.