A line of credit is a flexible facility secured against your property that you can draw on for any purpose. It's usually interest-only: the balance doesn't reduce on its own, and you pay interest on the daily balance you've used. Businesses use a similar facility, an overdraft, to manage cash flow for things like wages. Personal lines of credit against the family home are much less common than they used to be.

In this video, McKern mortgage broker Mark Jones explains how lines of credit and business overdrafts work, how banks decide your limit (based on your ability to repay, from as little as around $10,000 up to millions for larger businesses), and why overdraft rates are higher than standard business or home loan rates.

In this video

0:00 What is a line of credit?

0:36 How people use them

1:09 How banks set an overdraft limit

1:45 Overdraft interest rates

General information only, not personal advice.