3

I have a mortgage which has a credit margin at rate of 5.75% which I would like to get rid of as soon as possible.

One strategy to lower the interest cost would be to using one of my credit card to get a large cash advance and use it to pay a portion of the mortgage, then I would use a balance transfer into another credit card which has 0 or 1% APR for a certain amount of time. Thus effectively lowering one part of the mortgage credit line to a very low interest.

Once the APR of the new credit card reverts to higher than the mortgage credit line, I would use the mortgage credit line to pay back the card completely. Repeat the process as necessary.

Apart from all the trouble, what can go wrong with such strategy ?

I can think of the following problems:

  • Even 1% or 0% APR have sometimes balance transfer fees.
  • Timing is key, could yield some high-interest as money is getting transfered.
  • Could be denied the balance transfer.
  • Must make sure to never use the card that has had the balance transfered to, otherwise payment will be shared among credit card balance and new purchase which has higher interest.

Is there something else I am missing ? Assuming everything checks out, it sounds like a strategy that can save a certain amount of money and even increase my credit rating.

  • Regarding your 4th bullet point, in the US, for personal CCs, any payment amount over the minimum payment will be applied to the highest interest rate first. (Not necessarily true for business CCs.) – TTT Jun 27 '16 at 15:09
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You should check the details of those balance transfers - they typically have a 3 to 5 % 'one-time fee', which means you pay nearly a year's interest right away. And then every time you transfer the total on again.

Also, this fee gets added to the credit card total, and it is possibly considered paid last (after you paid off the completed transferred balance), so it cost interest for the whole time (and that interest is different, maybe 19.99 % or worse).

It is probably a better idea to refinance for 5 years at <3%, and they pay off as fast as possible.

  • FWIW, I often get balance transfer offers with a 2% or 3% fee, with 0% interest for 18 months. If you can manage to not use that card for any other purchases then you won't pay any interest. It's a great deal and if you read the fine print, auto-pay minimum balance, and set calendar alerts to pay off the full balance in time, you're golden. – tobek Dec 1 '17 at 16:04
2

The main risk I see to this plan is with a late payment to your credit card. For a variety of reasons, some outside your control, you could end up with a late payment on the CC and a +18% interest rate making your arbitrage attempts unprofitable.

You sense that this is risky, and it derives from placing short-term risk on a long term asset.

Your interest rate is high for the current market. What kind of things can you do reduce that rate? What kind of things can you do to reduce your principle? Those kind of things represent far less risk and accomplish the same goal.

2

Better suggestion: Refinance into a lower rate mortgage. In the US right now you could cut that rate substantially with very little effort, unless you are a bad credit risk.

Also: Not all mortgages permit use as a "line of credit" without additional fees, in addition to credit card transfer fees. (There is often a different kind of house loan, at a higher interest rate, if you really need that flexibility.) So this idea may not even be possible, or those fees may kill it, even before considering costs and risks on the credit card side.

Generally, gimmicks don't work.

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I think is an excellent idea. Use free money or almost free to do a lump sump payment. My recommendation is to have a reminder to pay credit card before, almost finishing, the 0% APR period.

  • Balance transfers are rarely completely free, and there are serious penalties for mistakes. There are better ways to do this with much less risk. – D Stanley Jun 15 '17 at 13:25
  • Yes, maybe there are other ways but this one is a great strategy using money banks to accelerate the mortgage. – StaffM Jul 8 '17 at 2:12
  • I really used it. Got 50k from my bank of america card (0% APR for 18 months, a one time fee of 3%. Interest applied only on other purchases made in the card) and used it to pay of my mortgage in home country(30Yr a $100k equal value (of which 50k contributed)). I paid 3k a month and paid of CC before the 18th month. If I let the mortgage run on itself at a rate of 10.25%, I would have ended up paying almost $200k. – int-i Apr 2 '18 at 21:25
  • Thats my point, I am using this strategy to accelerate my mortgage and it's working. – StaffM Apr 26 '18 at 18:55

protected by Dilip Sarwate Jun 14 '17 at 23:47

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