27 Apr Boosting Your First Position Line of Credit Results with Lazy Dollars
Will Using a Second Position Line of Credit Save You More
Following my last post, a reader didn’t understand why I would use a second line of credit to create greater savings on my first position line of credit. Specifically, the reader asked, “Why would you use debt to get rid of debt?” Let’s take a closer look.
First Position Line of Credit Example
After all your bills are paid, you have a positive cash flow of $1,000. Your original mortgage balance is $240,000. Using a traditional 30-year amortization schedule at 4.09 percent your monthly mortgage payment will be $1158.28. Let’s keep it simple and assume you’ve just started paying down your loan. Your current balance is $240,000. The interest rate on the second position line of credit is 4.5 percent.
We are going to compare the results of running your income and expenses through the first position line of credit with using a small second position line of credit. To boost your mortgage interest savings, $20,000 is withdrawn from the second position line of credit ($5,025 on the first and $14,975 on the 30th) and applied as an additional payment to the first position line of credit. You are also going to make regular principal and interest payments from the second position line of credit.
Pay Off the Mortgage in 13 Years Nine Months!
Using my excel product, ‘Create Your Own Line of Credit Scenario’, I took the time to calculate the solution for both scenarios. The results surprised me – the results are virtually identical! Total mortgage interest savings total approximately $105,500.
The results are identical because both scenarios are equally optimizing keeping your lazy dollars working by minimizing your interest costs and using your income to drive down your loan balance. In my next post, I explain in additional detail.
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