The Interest Savers

LINE OF CREDIT CONCEPT

HOW CAN THIS FACILITY HELP PAY OFF YOUR LOAN EARLY ?
WHY CAN IT BE SO BENEFICIAL TO YOU ?
THE DANGERS OF A LINE OF CREDIT FACILITY

The ‘Line of Credit’ concept is based on the following:

1. Pay your salary into your home loan account.
This reduces the balance owing on which interest is charged.

2. Use a special credit card offered by the lender for expenses.
The credit card is 'cleared' at the end of each month and added to your loan balance.
At the same time, your salary is deposited and deducted from your loan balance.
This means you have a smaller loan balance on which interest is charged.
If a 'special' credit card is not available you can use another credit card ... but just make sure you clear the balance within the interest free period.

Beware of certain matters if using a line of credit facility:

3. There should be no interest charged to your special credit card.
Be careful not to abuse your credit card.
You should not spend more than you have available as surplus income.

4. If your financier does not offer this type of loan you should check the costs of going to another lender that offers it.
Be sure to check all costs involved in transferring from one loan to another and/or from one lender to another.

5. You may have to pay a premium interest rate for this type of loan.
Most lenders should charge no more than 0.5% above their standard variable home loan rate, but some do not charge a premium. The others will eventually be forced to charge the same rate as for a traditional loan.
Compare the interest rates that lenders are offering for this type of home loan.

6. There are some lenders who now offer a small ‘line of credit’ in conjunction with the traditional home loan.
This can work very well and save you thousands of dollars.

7. The danger of this type of facility is that you over-spend with your credit card … but this can happen with your
normal credit card. ( see section 14 on Credit Cards ). You need to be careful with your spending.

EXAMPLE 1: (See Screen 1 following)

TRADITIONAL HOME LOAN LINE OF CREDIT

Monthly Monthly Salary

Repayments Deposited to Account

Loan Amount: $100,000 $100,000

Interest Rate: 6.75% 6.75%

Term of Loan: 25 years 22yrs 3mths

Frequency of Repayments: monthly monthly

Repayments: 300 X $690.92 267 X $690.92

Monthly Expenses: $ 4,000.00

Monthly Salary: $ 4,690.92

Total Interest Paid: $107,233.16 $ 88,914.83

Total Repayments: $207,233.16 $188,914.83

INTEREST SAVINGS over Traditional: - $ 18,318.33 *
Pay off Loan Early by: - 33 months

ANALYSIS OF SAVINGS:	TRADITIONAL LOAN	LINE of CREDIT
Initial Salary Deposit	----------	$ 4,690.92
Total Payments at $690.92	$206,585.08 (299 X $690.92)	$183,784.72 (266 X $690.92)
Final Payment	648.08	439.19
Total Repayments	$207,233.16	$188,914.83

SAVINGS to LINE OF CREDIT ( $207,233.16 - $188,914.83) = $18,318.33 *

Screen 1
USING THE HOME LOAN BUSTER – 2002 TO COMPARE TRADITIONAL LOAN TO LINE OF CREDIT

This savings to the Line of Credit, even though the monthly repayments are the same at $690.92, eventuates because
the 1st salary payment of $4,690.92 is paid into the Line of Credit account on day one, reducing the balance owing by that amount with the result that interest paid over the life of the loan is reduced dramatically.

EXAMPLE 2. Shows benefit of Weekly Repayments and Line of Credit over Monthly Repayments

TRADITIONAL HOME LOAN		LINE OF CREDIT
Monthly	Weekly			Monthly Salary
	Repayments	Repayments		Deposited to Account

Loan Amount:	$100,000	$100,000		$100,000
Interest Rate:	6.75 %	6.75 %		6.75 %
Term of Loan:	25 years	20 yrs 8mths, 1week		18yrs 8mths
Frequency of Repayments:	monthly	weekly		monthly
Repayments:	300 X $690.92	1073 X $172.73*
Monthly Expenses:				$ 4,000.00
Monthly Salary:				$ 4,748.50
Total Interest Paid:	$107,233.16	$ 84,189.90		$ 72,613.64
Total Repayments:	$207,233.16	$184,189.90		$172,613.64

SAVINGS over Traditional Monthly: ----		$ 23,043.26		$ 34,619.52
Pay off Loan Early by: -			4years, 4mths	6years, 4mths

* Note that the weekly payments have been calculated by dividing the monthly repayments by 4 to compare similar
repayments to the ‘line of credit’ concept ( $172.73 weekly X 52 = $8,981.96 p.a. and
$748.97 monthly line of credit [ $4,748 . 50 – $4, 000 . 00 ] X 12 = $8,982 . 00 p.a.

Screen 2
USING THE HOME LOAN BUSTER – 2002 TO COMPARE
TRADITIONAL MONTHLY & WEEKLY TO LINE OF CREDIT (See Screen 1 for Monthly )

ANALYSIS OF SAVINGS:	TRADITIONAL LOAN		LINE of CREDIT
	MONTHLY	WEEKLY	MONTHLY
Initial Salary Deposit	-------	-------	$ 4,748.50
Total Payments at	$206,585.08 (299) (224)	$184,130.18 (1066)	$167,664.00
Final Payment	648.08	59.72	201.14
Total Repayments	$207,233.16	$184,189.90	$172,613.64

SAVINGS over Monthly	$ --0--	$ 23,043 . 26 34,619 . 52	$

EXAMPLE 3. Shows benefit of Paying an extra $100 per month ( $25 per week ).


TRADITIONAL HOME LOAN LINE OF CREDIT

	Monthly	Weekly*	Monthly Salary
	Repayments	Repayments	Deposited to Account

Loan Amount:	$100,000	$100,000	$100,000
Interest Rate:	6.75 %	6.75%	6.75 %
Term of Loan:	18yrs, 5mths	15yrs, 11mths	14yrs, 7mths
Frequency of Repayments:	monthly	fortnightly	monthly
Repayments:	221 X $790.92	424 X $197.73
Monthly Expenses:			$ 4,000.00
Monthly Salary:			$ 4,856.83
Total Interest Paid:	$ 75,105.31	$ 62,156.66	$ 54,505.10
Total Repayments:	$175,105.31	$162,156.66	$154,505.10

SAVING over Traditional:	$ 32,127.85	$ 45,076.50	$ 52,728.06
Pay off Loan Early by:	6yrs, 7mths	9yrs, 1mth	10yrs, 7mths

* Note that the weekly payments have been calculated by dividing the monthly repayments by 4 to compare similar repayments to the ‘line of credit’ concept ( $197.73 weekly X 52 = $10,281.96 p.a.
and $856.83 monthly line of credit [ $4,856.83 – $4, 000] X 12 = $10,281.96 p.a. )
If you elect to pay weekly or fortnightly always divide the monthly repayment by 4 (weekly) or 2 (fortnightly) to achieve the maximum benefit.

Use the ‘Home Loan Buster’ CD to:
i. Calculate the Real Cost of your loan including all fees ;
ii. Calculate the Real Cost of your loan after any specified period, e.g. after 5, 10, or 15 years ;
iii. Determine 'how much is owing' at any date in the future (see Amortization Schedule) ;
iv. Compare a ‘Traditional’ style loan with a ‘Line of Credit’ loan.
v. Experiment with different salary and expense amounts to see how much you can save.