Reply: 1.1.1
From: Rolf Latham
Hi Greg
Calculators of various sorts of this type need to be treated with caution, not because they are wrong but because you need to actually see whether the basic assumptions apply to you.
Generally speaking on lower incomes and cashflows these products on an off the shelf basis COST you money.
Why ? Because the interest rate of the LOC product is say 6.5 %. The basic loan with that lender may be say 6.0 %.
On a loan balance of 200 000 you will pay on average near 1000 more in interest in the first year. Unless you can continuously park
over 15 000 in that account, the increased rate cost is not even covered.
As with all financial products the bottom line is NOT the bottom line. Do your sums in detail and you might see that many a lender is stretching the truth in their advertising.
Similarly many lenders, especially non bankies encourage you to "compare". Issue is that commonly that comparison is neither fair nor valid comparing budget loans with fully featured offset and or Line of Credit products.
Ta
Rolf