Credit Card Mortgage
October 9, 2005 12:05 PM   Subscribe

I have about 75K left on a long term mortgage at about 6.5%. Recently a credit card I have with a large credit limit (20K+) sent checks that could be used for full amount of credit @ 1.9% fixed for the life of the loan. Should I use this to pay off some of the mortgage at a lower interest rate? I know I can make the min payments, are there dangers or problems I'm not considering?
posted by samoa to Home & Garden (17 answers total) 1 user marked this as a favorite
Those checks are great as long as you are sure to make the payments on time every time. Usually the stipulation is that if you make one late payment, the rate increases to 20%+. I've looked into this for lesser amounts and that's the only catch I could find, but I'm interested in hearing what others say.
posted by TTNoelle at 12:14 PM on October 9, 2005

The danger is that your credit card is lying. The real definition of "for the life of the loan" is really "until we feel like raising it". Since the credit card companies can put you into universal default for really any reason, your 1.9% can turn into 30+% overnight, with no appeal. And don't count on your being a long-term customer or anything like that to protect you -- I've seen first hand that they now treat all their customers as disposable items.

Your mortgage lender has to play be a different set of rules, and with them you know your 6.5% is going to stay 6.5%.

So, unless you have the means to pay off the credit card overnight when they jack your rate, stay away. It's a trap.
posted by ewagoner at 12:16 PM on October 9, 2005

I am not 100% sure on this but I believe if you transfer the balance of the mortgage to a non-equity-based credit line, you'll no longer be able to deduct the interest come tax time.
posted by pmbuko at 12:17 PM on October 9, 2005

Best answer: Sure, you'll no longer be able to deduct the interest, but you still come out ahead. 6.5% less the tax break is still going to be more than 4% and the credit card is still going to be less than half.

Read your cardmember agreements carefully to see under what circumstances they can jack up your rates.

Also, some cash advance purchases have an up-front fee, 2-3%, though this is usually limited to a certain dollar amount ($30-$50) which may make it a good enough deal when you're borrowing $20,000.

I'd say the biggest thing to look out for, though, is that you'll be paying off $20,000 of your mortgage -- but your house payment won't go down. Instead you'll have an additional $400-$500 a month payment on your credit card (check your cardmember agreement to see how they calculate your minimum payment). This could suck if you have a financial crisis.

A safer way to take advantage of this offer is to borrow the $20,000, sock it into an EmigrantDirect savings account at 4%, and pay the minimum payment of the credit card out of the savings account. Interest rates are going nowhere but up so there's a good chance you'll be making 5% or 6% on the money left in the account by the time you close it. And if the credit card jacks up your rate, you can pay it off all at once. This is going to be worth, after the taxes you pay on the savings account interest, only a few hundred bucks a year at most, but hey, free money.
posted by kindall at 12:29 PM on October 9, 2005

Yes pmbuko, but you'll get a big lump exemption when you pay off that 20 grand -- that'll include a lot of interest. The question is then whether you have enough income in the realization year that your tax bill can absorb the whole exemption without throwing you into the AMT zone.

You won't lose your mortgage-interest exemption, but the tax code is quite complex and without knowing more about samoa's financial situation it's impossible to say whether it would be desirable to pay that much additional mortgage interest in one year.
posted by rkent at 12:33 PM on October 9, 2005

No, the credit card debt could be called in at any time by the issuing company. If you don't pay it off at the time they call it in, they begin legal maneuverings to seize your house or other assets.
posted by 517 at 12:37 PM on October 9, 2005

No, the credit card debt could be called in at any time by the issuing company. If you don't pay it off at the time they call it in, they begin legal maneuverings to seize your house or other assets.

This just isn't true in most cases. Check your cardmember agreement to see if there is a "security interest" clause, but nearly all credit cards are unsecured loans, which means they are loans against your expected future cashflow, not against your assets. The worst they can really do to you legally is get a judgment against you and garnish your wages. Most credit card loans cannot be "called in" either. I'd be more concerned, as others are, about them jacking up the rate.
posted by kindall at 12:45 PM on October 9, 2005

It strikes me the stakes are high enough (big benefits, big risks) in this for you to seek professional help with the card agreement and your mortgage agreement in hand -- probably from both a financial advisor and a lawyer. Cover Your Ass is the new Greed is Good.
posted by Rumple at 1:00 PM on October 9, 2005

The latest Consumer Reports has an article on how predatory the credit-card industry has become. The salient point for me is that the banks are regulated by one of two agencies funded by the industry, and that if they are not treated the way they like, they can switch to the other agency. This leads to a very hands-off approach to regulation by both agencies.

I would be very, very careful about owing a large sum on a credit-card.
posted by Kirth Gerson at 1:14 PM on October 9, 2005

I transferred about 12k to a low interest credit card 4+ years ago. The interest is 3.9 and was transferred from cards that were 10+%.

For some reason that offer was "fixed for the life of the loan" and it has never been increased, which isn't to say it couldn't have been, I guess. It's almost paid off now. I get those kinds of offers all the time but they're almost always for a fixed time. I don't know why that particular one wasn't.

The thing I would worry about is that you have to make sure that nothing else ever gets charged to that card and that the card is "blank" when you do the transfer. Otherwise payments will be applied to the 1.9% while anything else on there will collect interest at the higher, standard rate, which could be very high indeed. The CC company reserves the right to apply payments to whatever monies are ringing up the lowest interest so in effect, you'd have to get that Mortgage money down to zero before even a penny of future payments starts to eat at the other charges.
posted by dobbs at 1:33 PM on October 9, 2005

Make sure you don't have a prepayment penalty on your current mortgage.
posted by deborah at 2:43 PM on October 9, 2005

Rule 1: credit card companies will screw you.

Rule 2: see rule 1.

I agree with ewagoner. Low interest loans, when they are guaranteed as loans (as defined by the FRB/FDIC/NCUA depending on who you borrow off) and are fixed at that rate are fine.

Credit card agreements (covered by the FTC, a very different beast) are full of so many holes wrt their interest-rate-change clauses that you are making a big gamble on them not screwing you.
posted by lalochezia at 3:26 PM on October 9, 2005

You could take the $20K, invest it in a guaranteed-principal, dividend-paying, interest-bearing (yes, they exist!) investment vehicle. Use the dividends to pay off the loan, and pocket any difference.

There must be nothing quite so satisfying as making free money off a credit card company.
posted by five fresh fish at 5:32 PM on October 9, 2005

Best answer: I done this for over 7 years without a hitch.
This is GREAT opportunity.
I have about 7 CCs and House payments.

2 cards gives me about 2.5% interest for life.... I have about $30000 on it.. much cheaper than my 6.5% second mortgage. (even after tax issue)
I also put about $40000 on other two cards at 0% for a year.

I always record its final due dates for 1 year offers...(I use outlook for reminder... but I used to put it in big calendar on the wall to remind me about three weeks before)

Now The thing to do is pay MINIMAL payments... don't get scared for large balance at the end.

As many of you... I get those 1 year limited 0% offers, 1-2-3% offers all the time... almost every two or three month or so... After years of doing this I noticed that All credit card companies have cycles.. most of them are different from other.

I am not going to get in to calcuations here.. but after one year that $60000 in about 1% in interest is nothing compare to what I would had to pay in mortgage even after tax break.

now near the one year deadline, I look and call for other similar deals from Credit card companies... most likly the other two card companies offer similar things.. I just transfer over $30000 or more to that account... even with transfer fees (usually capped at $50 or so...)

Keep repeating.. while balance gets smaller and not paying much interests...

In worse case scenario.... (either i screw up and forget to pay serveral payments or there were NO other card deals around during the deadline date)

I can always use the $50000 open Line of Credit (second mortgage that is empty (because I paid off with CC))

At this point I am back to where I was but... smaller balance and only 1 or 2% interest during last one year instead of paying 6.5% interest...

I saved THOUSANDS if not tens of thousands in interest just doing this for years... I think my highest total credit card balance was round $100000 at one time...

Remember YOU have to use the credit wisely... I borrowed to save for interest in home, car, sometimes investments... MONEY make MONEY....

I am very median incomer with normal job (not even in managements) BUT demand for high credit line limits every time i have opportunities...

I don't have second job to create extra income but I figure few hours a month i look through Credit Card rules and payment situation is like earning money by not paying in normal interests.

My mortgage agent in a Bank looked at my financial situation and said that he does the same thing.

Oh by the way.. your monthlhy payment may seem higher .. but I figure it actually forces me to save more ..

I use Quicken or Money type software to keep track of all these account... and every month I sit and spend 2-3 hours assess how i am doing now and for the future...

It is almost fun...
posted by curiousleo at 10:34 PM on October 9, 2005

Rule 1: credit card companies will screw you.

Rule 2: see rule 1.

Aw, come on, they really aren't that bad. After all, if they screw you, you will never do business with them again. Things have to get pretty dire in your credit life before they'll go for the short term profit over the long-term relationship.

There are disreputable banks that specialize in subprime lending and you should stay away from them. But if you're not subprime, which you're definitely not if they're offering you a $20,000 cash advance, the really predatory lenders probably are not soliciting you as a customer anyway.

Just be aware of your money and you'll be fine. You only run into trouble when you take your eye off the ball.
posted by kindall at 11:02 AM on October 10, 2005

You only run into trouble when you take your eye off the ball.

This really is the key. I've been doing this for a few years as well, though not to the extent that curiousleo is, and haven't had any trouble. But the banks aren't doing it for people like me....they're counting on enough people to screw up and get in over their head, especially on the limited time offers, that they will come out ahead in the end.

Eventually I hope to get enough savings and income that these kind of games aren't necessary but in the mean time they are actually kind of fun.
posted by jacobsee at 2:39 PM on October 11, 2005

Yes, these games are very fun. I love getting the best prices on things, making money off the bank, and so forth. With gas prices going up, one of my latest "games" is trip combining.
posted by kindall at 6:29 PM on October 16, 2005

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