27 Apr Picture Your Line of Credit – Part 3
We all know the adage, ‘a picture is worth a thousand words’. Let’s look at the picture of your line of credit. We’ll move to the second month. Let’s began by reviewing your basic information.
You deposit $5,025 in the bank each month, your monthly expenses total $4,025 (This includes your mortgage payment of $1,364.40) and you have a $15,000 line of credit that charges an interest rate of 4.5 percent.
A Picture is Worth a Thousand Words
To view the picture, click on the following link:
Our Line of Credit Picture. If you have problems, copy and paste in your browser: http://sdrv.ms/18x1xVb.
Essential Elements of Using Your Line of Credit
In my last two posts, you learned the following.
1. You can use a line of credit the same way we use our checking account;
2. There are three ways to withdraw dollars from a line of credit: line of credit checks, overdraft protection and automatic bill pay.
3. Using $5,200 of the bank’s money, you skipped 18 months of mortgage interest payments saving $17,947 in mortgage interest payments. It cost you only $4.38!
4. How did you get away with paying just $4.38 in interest? You scored big by doing two things. First, you immediately made a loan payment equaling the income deposited in your checking account ($5,025). Second, you paid your family’s living expenses as late as possible. You used your mortgage company’s 15-day grace period and you paid your remaining living expenses on the 28th of the month.
You Borrowed $5,200 – What Happens Next?
On the 30th of the month, you owe the bank $4,200. What happens the second month? On your line of credit example, click on the tab, ‘2nd Month’ located at the bottom of the page.
1. The day you are paid, you make another loan payment ($5,025) equaling the income deposited in your checking account. This wipes out the $4,200 balance you owe the bank.
2. If your bank allows you to carry a credit balance, the bank now owes you $825. If your bank will not allow you to make a payment greater than what is owed, your balance will be zero.
3. You pay your bills the same way you did in the first month.
4. On the 30th of the month, you make a $300 withdrawal for savings and a $1,393 withdrawal as an additional mortgage payment. The $1,393 is a unique amount calculated by CashMap. The balance you owe the bank in cell ‘F64’ is $4,897.
5. Here’s the cool part! Because your average daily balance is just $226, (This is marked in blue) you owe the bank only $.85 in interest (This is marked in orange). You’ve created for yourself one cheap loan!
In the first two months, you’ve paid just $5.23 in interest and saved $22,099.91 in mortgage interest. This is a phenomenal return on your investment!
In my next post, we’ll review the remaining ten months of the year. You’ll see that you too can start saving thousands of dollars in interest.
Ready to start your journey towards financial freedom? Get started today!
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