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Speaker 1: I want to talk to you about average daily principle balance versus average monthly balance because some banks have their Home Equity Line of Credit set up on average daily principle balance where they're actually going to look at the interest to charge you based on that day's principle balance. Some actually have it based on average monthly balance. Here's the difference. On average daily principle balance as you're depositing money, your balance is going down, so therefore the interest that they're going to charge you on that balance is going to be less. However when you withdraw, your balance goes up. Now they're going to charge you more interest based on the balance going up, so, it fluctuates. Most banks base their Home Equity Line of Credit on average daily principle balance. However, there are some banks that base their interest off of average monthly balance. It's not that it's a great advantage to having average monthly balance, but it does require less discipline. That could be one of the advantages of average monthly balance.

Here's why. Let's say that bank looks at your balance on the 14th of each month, so on the 14th of each month, you want to make sure that all of your income has gone in there so that the balance decreases as much as possible. Now, on the 14th, they're going to look at that balance and charge you interest on that. However, what you do on the 15th doesn't matter, your balance could go all the way back up, don't recommend that, but it could. That means the bank is still only going to charge you interest on what they saw on the 14th. Less interest charged means a faster payoff period.

There you have it, the differences between average daily principle balance and average monthly balance. How do you know the banks, which banks offer average daily and average monthly? It's pretty simple, when you're going to apply for your Home Equity Line of Credit, you ask them that very specific question.

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