Can Your Line of Credit Disappear?


Can Your Line of Credit Disappear?In Australia, lines of credit have been a flexible way of people gaining access to funds secured by their own homes. But what happens when a lender cancels your line of credit, and what you may do to avoid this from happening.What is a Line of Credit? A line of credit may allow you to access the equity within you home to borrow for other reasons at home loan rates. The equity that you have is simply the difference between what what your home is worth and what you owe on it.Hopefully, the value of your home will increase over the years, so that even if you have not paid off significant amount of the loan your equity and real worth of the home has increased.While lines of credit may be an effective way of consolidating your debts at low interest rates, they may also lead you into paying little off the principal of the loan or even going backwards.Remember, every time you access your line of credit for a new car, holiday etc, you are wearing down the equity in your own home.Some Reasons why a Line of Credit May Be Revoked1. You Weren’t Truthful in Your ApplicationIf you didn’t fully disclose all relevant financial details to the lender that would affect their decision to lend you the money, they can certainly take away the facility.Often people inflate the value of the property or their ability to repay the loan via personal financial circumstances. If these misrepresentations are revealed, the line of credit may be revoked immediately.2. You Exceeded Your Credit LimitIt seems the temptation of having easy access to loads of cash is too much for many borrowers. Some people simply can’t control their spending and will need to have their repayments altered so that they are easy to meet, or in some unfortunate situations, the line of credit may be withdrawn altogether.3. Your Circumstances Dramatically ChangeNearly all loan documents insist that you inform the lender when your financial situation affect your ability to repay the loan. In extreme cases, this may relate to bankruptcy, imprisonment or death of the main provider. If you don’t inform them promptly of these circumstances, they (the lender) can commence cancellation of your loan.Common Terms & ConditionsA common clause in many loan documents reads something like:”We may refuse to provide further credit at any time without prior notice to you. We may also reduce or cancel the credit limit at any time without notice to you. If we cancel the credit limit we may ask you to pay the money owing in full immediately.”What to do if Your Line of Credit is Cancelled In the unlikely event that a lender revokes a line of credit, there are 3 options depending on why the loan was revoked.1. Convert the line of credit to a standard into a standard loan. This is the best option if you can meet the loan criteria, especially if you can get the lender to waive establishment fees and termination costs.2. Refinance with another Lender.This option may be difficult if not impossible dependent again on your situation. On the other hand, the financial market is constantly changing and new products may arise that suit your needs3. Dispose of the asset used as the security – your homeThis is clearly the worst option and the scenario is usually when mortgage refinancing isn’t possible because the value of your home dropped significantly and you have used up all the equity available through your line of credit before the facility was withdrawn. You then would have to look for a lender that will lend you more than your home is worth.As this is extremely unlikely, you would have to have a fire sale of your property to clear most of the debt.In brief Knowing the terms and conditions of lines of credit is vitally important, especially when the stakes involve the roof over your head. Knowing where you stand before entering such an agreement is a must, and any uncertainties must be discussed in full before proceeding. Lines of credit may be a powerful tool in your financial health, but like any loan, restraint and discipline should never be abandoned in pursuit of temptation.Debt relief contactsFinancial Ombudsman Service, 1300 780 808Credit Ombudsman Service, 1800 138 422Credit & Debt Hotline, 1800 808 488Financial CounsellorsFinancial counsellors offer a free and independent service to help you assess your options if you’re having trouble managing debt. Google “Financial Counsellors” or “Free Financial Counselling” including your locality or capital city to find a Financial Counsellor in your area.Useful websitesFinancial Counsellors Association of NSWWesley MissionCentrelinkConsumer Credit Legal CentreInsolvency and Trustee Service Australia