Ok so I know what a lot of people are going to say and before you comment please read my question. I have a great credit history and I am looking for new ways to help me make the best of credit, while saving me money. So I searched around on the forum and couldn't find any post like this so I thought I would ask for your opinion. I have a mortgage with 140k left on it and I was considering paying large one time payments with my credit card. For right this minute I don't need my score so high. I am happy with the number of credit cards I have and the limits they have provided me. I have recently paid off all my cards after financing a my car on my credit card for 0% for 12 months for a $225! Yeah I borrowed $7500 at 3% transaction fee. So now I was considering doing the same for my mortgage.
So I here is my question. I was thinking about making a 1 time payment of $3000 that I would pay off over the next year-15 months for a 3% transaction fee. I ran it through a mortgage calculator and it said it would save me about $5k in interest over the course of the loan. The $3000 would cost me $90 to do. Yeah I could save up the 3k and just do it out right but I was thinking the big payment now would benefit me more than a bunch of small payments over the same time. I am dedicated to making my payments and not worried about missing. Any thoughts would be appreciated.
Thanks~
Starting Score: 719
The only concern I have is usually paying a loan with a credit card is considered as a cash advance which typically starts accruing interest right then and there and is typically disqualified in any 0% offers.
If you're certain it doesn't in your case, then it makes financial sense to me if the math works out; I haven't checked yours but a chuck of money paid to principal is better to do now than later with the way simple interest loans (or any loan really) work, and if the 3% fee is less than your APR anyway, well that's even better.
In addition to triple-checking your T&C on that offer (and I'd encourage you to check the interest paid in your account when you used this for your auto loan), be aware the bank may not like it at all and may come down hard on the tradeline. I have no idea how likely this would be, and it may be near zero with a given lender, but it's a possibility with any of them.
Interesting thoughts. What I did on my mortgage last week was to increase my monthly payments by the max 20%. It reduced my payback period by about 4 years. I too am thinking about taking advantage of annual extra payment of the principal. My bank will permit up to a 20% principal payment - obviously I can't afford that ($185k x20% = $37k) but a payment of even a $1000k off the principle would net a shorter paydown period for me. My lowest interest rate card is 5.9% which is higher than my mortgage of 3.6% so I don't see an apparent savings for me to use your method. However, your case is more interesting since your cc rate is lower than your mortgage. Not sure how to answer your question but you could go to your banker and ask them to run the numbers of the different scenarios and see what happens.
Have you also looked at your 401k tax refund and putting that against the mortgage? A deposit to your retirement savings may have a secondary benefit for the mortgage paydown as well.
Starting Score: EQ 732 October 2007; Current Score: EQ 839; TU 865, July 2022;
@Revelate wrote:The only concern I have is usually paying a loan with a credit card is considered as a cash advance which typically starts accruing interest right then and there and is typically disqualified in any 0% offers.
If you're certain it doesn't in your case, then it makes financial sense to me if the math works out; I haven't checked yours but a chuck of money paid to principal is better to do now than later with the way simple interest loans (or any loan really) work, and if the 3% fee is less than your APR anyway, well that's even better.
In addition to triple-checking your T&C on that offer (and I'd encourage you to check the interest paid in your account when you used this for your auto loan), be aware the bank may not like it at all and may come down hard on the tradeline. I have no idea how likely this would be, and it may be near zero with a given lender, but it's a possibility with any of them.
Thanks for the advice. I guess i should explain a little bit better.. Every so often my cc send me blank checks and say use it for anything, home improvement, pay off other bills/cc, or even pay yourself. So what I did with the car is I wrote out a check to myself and deposited it and then paid for the car in full out of my regular bank account. You get the transaction fee when it passes through the cc company. I had the loan for a year and I'm sure the only charge was the 3% because that was the only thing I used that card for all year! I am very good about keeping track of what they charge me. Infact the only thing they start charging me interest on was the interest, but I paid that off the first month.. LOL I once called a cc over an overcharge of interest of just $1.75. A little note that I didn't realize is that your payment goes toward the 0% loan unless you pay more than the minimum payment. I thought that was against the law,(had to apply to the highest % first, but I guess there is a loop hole when you use checks like this. Anyway I don't know how they would know what I used it for since it was written out to myself. Kind of silly because to me it is the same as a cash advance but I deposit it instead of cashing it. (seems like a loop hole in the system in our favor for once.)
I'm not sure I understand how or why the bank would come down hard on my tradeline. I am responsible with my credit. It's my line of credit from a completely different company. If I can blow $7500 on stuff, why can't I use that same line of credit to buy a car if my line of credit is large enough? The car was used so the rate was going to be higher than what I paid.
I appreciate the insight and advice never the less.
@Roarmeister wrote:Interesting thoughts. What I did on my mortgage last week was to increase my monthly payments by the max 20%. It reduced my payback period by about 4 years. I too am thinking about taking advantage of annual extra payment of the principal. My bank will permit up to a 20% principal payment - obviously I can't afford that ($185k x20% = $37k) but a payment of even a $1000k off the principle would net a shorter paydown period for me. My lowest interest rate card is 5.9% which is higher than my mortgage of 3.6% so I don't see an apparent savings for me to use your method. However, your case is more interesting since your cc rate is lower than your mortgage. Not sure how to answer your question but you could go to your banker and ask them to run the numbers of the different scenarios and see what happens.
Have you also looked at your 401k tax refund and putting that against the mortgage? A deposit to your retirement savings may have a secondary benefit for the mortgage paydown as well.
My college roommate was a math major (teaches high school trig) and I talked it over with him and neither of us could come up with a reason not to. All the numbers seem to make sense. Thanks for the advice about the 401k tax refund. I will look into it.