Originally Posted by zuki
* i want to understand this technique and try it.
Here's how I would emulate the 'system'
1. Open a HELOC that allows you to draw upon it using a debit card and checks, and roll your outstanding home loan into it- WaMu's 'on the house' card is one example of this.
2. When you get your paycheck, put 100% of it onto your HELOC.
3. When paying bills, buying groceries, etc, use the HELOC debit/checks
4. Repeat #2 and #3 until paid off
What is happening is that by putting your entire paycheck onto the loan, you're reducing the average amount you owe, reducing the amount of interest you're paying.
Beginning of month mortgage: ($100,000)
Beginning of month paycheck: $5000
Mortgage payment: ($3000)
Total outstanding at beginning of month: ($95,000)
Bills paid on 20th of month: ($2000)
Total debt on the 20th: ($97,000)
Average monthly debt
Since interest is calculated using the average daily balance, you can see why this 'system' could work.