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Pay Off Your Mortgage Quicker Using Line of Credit or Revolving Credit to Save Money.

Updated on February 22, 2012

Save Money On Your Mortgage

 

Mortgage Minimisation - How to use Line of Credit or Revolving Credit to Save Money.

 

What is a line of credit or revolving credit?

A line of credit also referred to as revolving credit is a loan that has a pre-determined limit.  If your house is worth $300,000 you may have a credit line with a credit limit of $260,000 secured against your house.  Your current mortgage may be $240,000 of this, this means that you have $20,000 that you can draw on and use at any time.

 

The $20,000 is available immediately and you only pay interest on what you actually use.  Many savvy investors leave this money in a line of credit account as an emergency reserve fund, just in case they need money in a hurry. 

 

How it Works

You set up your salary to be automatically paid into this account.  During the month you pay all your living expenses using the credit card.  At the end of the cards interest free period (generally 30-55 days) you use the line of credit to pay off your credit card in full. 

 

The advantage of the line of credit is that by putting all your salary into the loan account and using the credit card for expenses and delaying paying this as long as possible you will have less principle owing over that time period and you will pay less interest.  In addition all of your savings are in this account and are actively reducing your loan amount.  You are increasing your home loan payments by putting in every spare dollar.  How you manage your money is how you save money.

 

This strategy works best for people who have a large surplus every month.  The larger the difference between amount put into the account and the expenses drawn out the faster the loan principle will be paid off.

 

Make sure you get your credit card automatically paid at the end of each interest free period so you don’t forget.  Never spend more money than you have put in there.  Remember that you are 30-55 days behind on payment of your expenses, so make sure you have a cash buffer to pay this if something unexpected comes up.

 

Warning! Do not use if you do not have good savings habits.  You must be able to set and keep to your budget.  There is a huge temptation to take out more money each month than you put in.  It is very easy to do this.  You must be very disciplined as it is very easy to get access to this money.  Do not get a line of credit if you are impulsive with your spending or get accumulate credit card debt.

 

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