The reasons why you would take out a line of credit on the rental instead of a “standard” mortgage product would be:

  • You want to be able to re-advance the mortgage funds in the future and use the money again without having to qualify for it.
  • You want to put large sums of money (in excess of any allowable pre-payment options that come with a mortgage…usually about 15% – 20% of the original mortgage amount each year over and above regular payments). The line of credit is “open” which means that you can pay it off at any time without penalty.
  • You want to have the ability to make “interest only” payments on the loan and not be required to pay down the principle.

You’ll usually pay a higher interest rate on a line of credit than you would on a “regular” mortgage with an amortization in order to be able use these features. You can also only borrow  up to 65% of the property value on a line of credit with most lenders.

About The Author