Taking out a line of credit

John and Jenny are both 70 and have enough to live on from day to day. They have, however, just discovered that the roof on their house needs replacing. They don’t have the required $10,000, but their bank offers to finance it with a line of credit loan that will be secured on their currently debt-free home. It will cost them 11% per annum, but they won’t have to pay the interest – it gets added to the loan. The loan is to be repaid when the house is eventually sold. The bank suggests that the mortgage lets them borrow further amounts, just in case.

John and Jenny’s lawyer checks the deal out and makes sure the mortgage document is okay to sign. The bank lets them borrow the $350 in legal fees as well. The bank explains that the outstanding balance on the loan will double in about 7 years, but they really don’t have much choice. The roof needs replacing now.