Question:

Hi.

Last year, we decided to put $100.00 per week on our line of credit which is about 22,000.00 at prime rate. The reason I decided to concentrate on the line was because the prime rate is so low and I believe will be back up around 6% again. Our mortgage is around 28,000.00 locked in at 6% for another year and a half. Do you think Im putting that extra $100.00 per week in the right place? I know it is less interest but I thought getting it down quicker before the prime begins to go back up. We do not have any other outstanding debt (credit cards, car payments etc.) Thanks for you expertise.

Answer:

I generally advise clients on two fronts. Pay the smallest loan first and apply those payments to the next smallest loan and so on until you are left with the largest loan last. The net result is that by applying the cumulative smaller payments to the larger loan remaining will repay it quickly in the end.
Secondly, the advice I give is to pay the highest rate loan faster. Currently that would mean paying your mortgage faster than your credit line. At the current rates, EACH $100.00 prepayment on your mortgage would translate to a $2.25 savings in total interest paid per annum on both your loans. Times that by 52 and you would reduce your total indebtedness by over $100.00 annually.
Hope this helps,
John Lozinski

Answered By: John Lozinski

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