Seattle, WA (PRWEB) November 5, 2005
Everyone is always looking to save money one way or another. This is especially true with their biggest bill of all, the house payment.
But is there a way to do this without having to cut back on the things that they really like to do?
For some homeowners it is a reality and the savings are, quite frankly, nothing short of amazing. The simplicity of this plan is laughable, and, at the same time, a stroke of genius. Here it is: "Replace The Checking Account with A Home Equity Line Of Credit and It Will Save A Ton of Money."
That is pretty much it, but let's breaks it down a bit more.
A Home Equity Line Of Credit (HELOC) has 2 unique features that no other home loan offers that make this possible. They are:
1. It is a Revolving Account--
Just like a checking account or a credit card. That means money can be deposited and withdrawn when needed. That is why the lender issues a debit card and checks when someone opens a HELOC.
2. Interest Compounds Daily Instead Of Monthly--
While this may sound like a negative, it is really a benefit. Here is an example:
Say you just got paid at work. Go to the bank and deposit the check, but deposit it into the HELOC instead of the checking account. Go to the store to buy some groceries. Pay them with a debit card or checks, but use the one from the HELOC instead of the checking account.
Here is how money is saved with this program:
Remember how the interest compounds daily? Go grab a bank statement from the checking account. See where it says "Average Daily Balance." That means with all of the deposits and withdrawals, this is the average amount in the account.
Put this money into a HELOC it will lower the balance of the loan, thus lowering the payment. Because it compounds daily, it does not matter if deposits and withdrawals happen all of the time. Any amount deposited into the HELOC above the basic interest goes 100% to lowering the principal balance. Let's work with some hard number and see it in action.
Take a $150,000 HELOC at 8%. This would make the full payment $1,100, with $1,000 of that going toward interest. A whopping $100 goes toward principal. The average daily balance in the checking account is $10,000.
Deposit the $10,000 into a HELOC, making the balance $140,000. That would lower the interest part of the payment from $1,000 to $933, a savings of $67. Of the $1,100 payment, $167 goes toward principal instead of $100. That might not sound like much, unless it is put in these terms:
This will save $132,000 in interest on a $150,000 loan
This would shave a full 10 years off the loan. It would be paid off in 20 years instead of 30. That is 120 less payments of $1,100 per month. A lot of savings for the average homeowner.
After reviewing the facts, features and claims in regards to this loan program, I can honestly say it is one of the only ways of saving a lot of money without having to scrape money together and go on a stricter budget.