In response to our recent post about a simple equation to keep track of the interest you'll save on your HELOC as rates drop, a friend in the mortgage business offers this suggestion for those who want to give the old desktop calculator more of a workout:
"You overlooked the fact that HELOC interest is calculated on a daily basis, not monthly. To get really nerdy and precise, use this equation: Multiply the amount you owe by the amount the prime rate decreased, and then divide the total by 365 to see how much interest you'll save each day of the year. For your monthly payment, multiply that daily interest rate by the number of days in your payment cycle."
In other words, if you owe $200,000 in principal on your HELOC and the prime rate drops by three-quarters of a point, the two-step equation will look like this:
(200,000 x .0075)/365=$4.11 in interest saved every day
4.11 x 31=$127.41 in interest saved in a 31-day billing cycle