Stuck with 8% interest in a 5% world?
Posted Oct 19, 2007 @ 9:35 am, Viewed by 303 Visitors, Read 304 Times.
In looking at ways to make the most of your mortgage I got to thinking about people who have a small balance left on their mortgage but are stuck with a large interest rate. Often, in this case, it just doesn’t make sense to refinance; the cost could outweigh the benefits. An alternative to consider might be paying off the mortgage with a credit card.
At first it seemed like a crazy idea, but as I thought about it I started wondering if it might have some merit. Whether it is truly a good idea is questionable but it is an option that if used wisely, might work. Banks are falling all over one another vying for our attention, and if you have great credit you may find a fixed-rate credit card offer with a very attractive rate. It isn’t unheard of for a bank to offer 0% on balance transfers and convenience checks at a comparably low rate. Why couldn’t you use the convenience check to pay your mortgage, thereby transferring the balance of your loan to the credit card (that has a lower rate)?
Of course there are concerns and anyone considering taking this route would need to do their homework very carefully. Read all the fine print. Understand how the interest rates are tiered. Remember that there are often steep penalties for a late payment, which may result in higher interest rates. Know that some lenders may not accept a convenience check as payment. Also understand how important it is that you don’t use the card for anything else and that you make regular payments – at least as much as you were paying the mortgage company. Making anything less will prolong the payoff period and cost you more interest in the long run.
The truth of the matter is that banks aren’t going to offer something unless the overwhelming odds are that it will work in their favor, so you need to be more disciplined than they expect you to be and smarter than they give you credit for. If you are, you just might be able to beat them at their own game.
At first it seemed like a crazy idea, but as I thought about it I started wondering if it might have some merit. Whether it is truly a good idea is questionable but it is an option that if used wisely, might work. Banks are falling all over one another vying for our attention, and if you have great credit you may find a fixed-rate credit card offer with a very attractive rate. It isn’t unheard of for a bank to offer 0% on balance transfers and convenience checks at a comparably low rate. Why couldn’t you use the convenience check to pay your mortgage, thereby transferring the balance of your loan to the credit card (that has a lower rate)?
Of course there are concerns and anyone considering taking this route would need to do their homework very carefully. Read all the fine print. Understand how the interest rates are tiered. Remember that there are often steep penalties for a late payment, which may result in higher interest rates. Know that some lenders may not accept a convenience check as payment. Also understand how important it is that you don’t use the card for anything else and that you make regular payments – at least as much as you were paying the mortgage company. Making anything less will prolong the payoff period and cost you more interest in the long run.
The truth of the matter is that banks aren’t going to offer something unless the overwhelming odds are that it will work in their favor, so you need to be more disciplined than they expect you to be and smarter than they give you credit for. If you are, you just might be able to beat them at their own game.
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Problems you mentioned and also rarely do you get a credit card that is high enough to be workable. There is a newer loan program my wife ( a mortgage broker) is researching that reduces principal through sweeping unused funds in a checking account to pay down principal. For well heeled individuals, this is an option.You get a rapidly reduced pay down. We can do such by religiously paying more each month or paying 2 more payments each year. It is sort of complex, but from what I recall started in Australia.