Interest Only Line of Credit and Principal Reduction


So how do you lower the balance on the interest only line of credit?


Your minimum payment is only simple interest, but like most loans you can pay additional towards the principal balance with your monthly statement. As a side note, in doing this the advantage of an interest only line of credit is that your next months minimum payment will go down.

For example, if you have a $25,000 line of credit at Prime -1 (currently would be 6.5%) and your minimum payment is $135.42, if you make a payment of $500 this month $364.58 would be applied towards your principal balance. Next month if you made the same payment of $500 your balance would go down to $24,635.42 and your minimum payment would go down to $133.44, so $366.56 would be applied towards your principal balance. This is the power of simple interest vs an amortization schedule.

Answered over 9 years ago
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