Can I use cheaper money to pay off my mortgage/heloc loans?

[myfire123]

I believe that what I'd like to do makes sense but I can't seem to wrap my head around the small details of how to go about it. Hoping some of the smart people here can guide me to the right answer.

I've got mortgage and heloc balances at 4.375% and 5% interest. The payments total about $33,600 a year. (taxes and insurance are included in the mortgage payment) I've had excellent credit for years and have many cards with big limits. For as long as I can remember I've been receiving special credit card cash advance offers of 0% for a year (sometimes even for 15 months) for a 2% or 3% fee. These are obviously better interest rates than my mortgage and HELOC have. I consistently have more than the $33,600 yearly mortgage total available to me at these rates. Is there a way to use this better rate that I perpetually seem to have to pay my higher rate mortgage and HELOC debt, and how would I go about doing it? Roughly I'm thinking I could borrow the $33,600 from the credit card offers and put a quarter of it into a regular checking account, and three quarters of it into 3, 6, and 9 month CD's? Make the mortgage payments as usual throughout the year, then rinse and repeat year after year? Could this plan work or am I missing something really obvious? TIA for any advice.

 

[bobandsherry]

I'd just refinance those two into new mortgage. Rates are now lower than your current rates.

 

[brucethebroker]

I'd just refinance those two into new mortgage. Rates are now lower than your current rates.

Yep. and look into a 15 year term, which will also lower your interest rate.

 

[RetireBy90]

If you were to draw the $33K and deposit into CDs, I think you would be hard pressed to find them anywhere near 2 or3% return.

Just spitballing here, seems your rate would be 2 or3% to borrow, which is less than home loans. What if you were to take say $10K from a card, and apply that to your higher rate loan. Then you would have a payment of $800 per month to pay off in 1 year. You would save more than the fee in interest on home loan, but would have to pay more each month. You could scale it to what you are comfortable with in your budget.

If they are offering you 0% loan then some will not pay off in time allowed, and if you fall into that case, they have to collect like 3 times the interest to make a return on all those that want to get a free loan. In other words, if only 1 in 4 don’t pay off in time they have to make 4 times the return on that one.

I might try say $2500 for a 1 year no interest, and if it works out I could do it again and again till mortgage is paid off.

Used to be that taxman was helping by allowing you to write off any mortgage interest. ain’t so for most now. Sad face

 

[COcheesehead]

You’re monkeying around. This type of thinking got you into this situation in the first place with the HELOC. Pay off your debt fast and furiously. Be done with it.

 

[skipro33]

The credit card offer is not a better rate. It's a 1 year/18 month rate with a huge ballon payment or else you incur a HUGE interest on the whole amount since the start of the loan. If anything goes south for you and you can't make the payoff on time, what's THAT interest rate?

You also loose the tax advantage of a mortgage as you are buying out your deductible mortgage with an unsecured loan.

Like I mentioned in your other thread, Refi at 30 years for under $1000 a month and make additional principle payments to pay it off sooner. This gives you leeway if something goes not according to plan.

 

[jollystomper]

I agree with those who say to just refinance, and look at a shorter term. It is a lot simpler than monkeying around with various CCs and CC loans. It is best to make your financial life simpler.

 

[DrRoy]

The mortgage interest is tax deductible. The other interest is not.

 

[mickj]

The credit card offer is not a better rate. It's a 1 year/18 month rate with a huge ballon payment or else you incur a HUGE interest on the whole amount since the start of the loan. If anything goes south for you and you can't make the payoff on time, what's THAT interest rate?

I don’t believe you pay interest since the start of the loan. I think that is only on installment loans, not credit cards.

Still wouldn’t recommend it though.

 

[bingybear]

Usually the CC offers are for purchases, not cash advances. So you likely could not use them for paying your mortgage unless you paid the CC cash advance fees. There are usually got ya's with the CC offers if you are not careful.

 

[pb4uski]

The mortgage interest is tax deductible. ....

Not necessarily.... with the recent changes in tax law and the significant increase in the standard deduction many taxpayers no longer get any tax benefit from mortgage interest unless their itemized deductions exceed $24,400 for a couple.

 

[Huston55]

Roughly I'm thinking I could borrow the $33,600 from the credit card offers and put a quarter of it into a regular checking account, and three quarters of it into 3, 6, and 9 month CD's? Make the mortgage payments as usual throughout the year, then rinse and repeat year after year? Could this plan work or am I missing something really obvious? TIA for any advice.

This implies you plan to spend at least 25% of it. Not good.

You’re monkeying around. This type of thinking got you into this situation in the first place with the HELOC. Pay off your debt fast and furiously. Be done with it.

+1

 

[HawkeyeNFO]

Here is what I did last year...wrote myself the $35,000 check from the credit card. Fee was 3%, capped at $75, so that's what I paid. 0% interest for 18 months. Stuck the $35,000 in a 15 month CD paying 2.25%. Collected my profits, and made the minimum payments each month on the CC, to avoid any interest payments. Now the CD has matured, so the cash is liquid, and I'll soon pay off the remaining balance on the CC. The only negative is that it hurts your credit score a bit, because each month they see that you are carrying a balance on one of your credit cards.

 

[COcheesehead]

Here is what I did last year...wrote myself the $35,000 check from the credit card. Fee was 3%, capped at $75, so that's what I paid. 0% interest for 18 months. Stuck the $35,000 in a 15 month CD paying 2.25%. Collected my profits, and made the minimum payments each month on the CC, to avoid any interest payments. Now the CD has matured, so the cash is liquid, and I'll soon pay off the remaining balance on the CC. The only negative is that it hurts your credit score a bit, because each month they see that you are carrying a balance on one of your credit cards.

But you may have ended up with higher insurance rates because of the lower credit score.

 

[bobandsherry]

Here is what I did last year...wrote myself the $35,000 check from the credit card. Fee was 3%, capped at $75, so that's what I paid. 0% interest for 18 months. Stuck the $35,000 in a 15 month CD paying 2.25%. Collected my profits, and made the minimum payments each month on the CC, to avoid any interest payments. Now the CD has matured, so the cash is liquid, and I'll soon pay off the remaining balance on the CC. The only negative is that it hurts your credit score a bit, because each month they see that you are carrying a balance on one of your credit cards.

I've received countless offers to write myself a check from my credit card companies. Not once, in recent years have I received any that were capped. And very few were under 5%. Which credit card gave you that offer?

 

[bobandsherry]

But you may have ended up with higher insurance rates because of the lower credit score.

That's a silly comment. How much hit do you think a credit score takes for a $35,000 outstanding? Not much, maybe a couple points, hardly enough to change your overall rating. So would have zero impact on insurance rates.

 

[copyright1997reloaded]

That's a silly comment. How much hit do you think a credit score takes for a $35,000 outstanding? Not much, maybe a couple points, hardly enough to change your overall rating. So would have zero impact on insurance rates.

Because of a special credit card bonus points deal, I did a $10K federal tax payment on one of my CC's in December 2018. Unfortunately this card had a $15K limit but I have tons of unused credit on other cards. My Trans Union score went from 829 at the beginning of December (before doing the charge) to 792 in January 2019. That's 37 points, hardly a couple points. I paid the bill off mid January (on time payment), but it went down further in February to 785. It has since recovered back to 829 but I was surprised in terms of the negative impact from that one charge...most likely because the card was 2/3rd's maxed out.

ETA: Just looked, I have over $225K in available credit limit on my cards...so holding 13k or so on that in December was a drop in the bucket.

 

[kgtest]

I just locked at 2.75 saving 1.25% from current rate

Savings comes out to like $220k of interest over what would have been 25 years.. Sure I'll miss out on that extra 10 years of SALT deductions with the mortgage interest...sooo soo sad lol.

yay!

Edit to add I did pay down a bit, rate was at like 3% so I paid down .25 well worth the 6k

 

[COcheesehead]

That's a silly comment. How much hit do you think a credit score takes for a $35,000 outstanding? Not much, maybe a couple points, hardly enough to change your overall rating. So would have zero impact on insurance rates.

I can tell you from experience that when I put big business expenses on my card, $10,000 ish, my score drops as much as 40 points. So its not silly at all.

 

[COcheesehead]

That's a silly comment. How much hit do you think a credit score takes for a $35,000 outstanding? Not much, maybe a couple points, hardly enough to change your overall rating. So would have zero impact on insurance rates.

You can read more about credit utilization and how it plays with your credit score.

https://www.thebalance.com/understanding-credit-utilization-960451

 

[bobandsherry]

Because of a special credit card bonus points deal, I did a $10K federal tax payment on one of my CC's in December 2018. Unfortunately this card had a $15K limit but I have tons of unused credit on other cards. My Trans Union score went from 829 at the beginning of December (before doing the charge) to 792 in January 2019. That's 37 points, hardly a couple points. I paid the bill off mid January (on time payment), but it went down further in February to 785. It has since recovered back to 829 but I was surprised in terms of the negative impact from that one charge...most likely because the card was 2/3rd's maxed out.

ETA: Just looked, I have over $225K in available credit limit on my cards...so holding 13k or so on that in December was a drop in the bucket.

No idea if other things contributed or difference in available credit or what. I did a simulation and with my credit history it was about 15 point hit. But even using your impact, 37 points is not going to change your insurance rating. You are still in then excellent credit rating.

 

[copyright1997reloaded]

No idea if other things contributed or difference in available credit or what. I did a simulation and with my credit history it was about 15 point hit. But even using your impact, 37 points is not going to change your insurance rating. You are still in then excellent credit rating.

There is nothing wrong with my credit. Tons of available credit, a long blemish free history and I can't remember ever not paying a credit card in full in the past 40+ years. Also, I didn't say it would impact my insurance rating, especially since it was relatively short term in duration.

The point is, 37 is not "maybe a couple points" on the post where you called someone silly for bringing it up.

 

[skipro33]

I don’t believe you pay interest since the start of the loan. I think that is only on installment loans, not credit cards.

Still wouldn’t recommend it though.

The interest accumulates and if you don't pay off the loan on time, it's all added to the amount borrowed. Read the fine print.

 

[skipro33]

Here is what I did last year...wrote myself the $35,000 check from the credit card. Fee was 3%, capped at $75, so that's what I paid. 0% interest for 18 months. Stuck the $35,000 in a 15 month CD paying 2.25%. Collected my profits, and made the minimum payments each month on the CC, to avoid any interest payments. Now the CD has matured, so the cash is liquid, and I'll soon pay off the remaining balance on the CC. The only negative is that it hurts your credit score a bit, because each month they see that you are carrying a balance on one of your credit cards.

Why not just use a different credit card offer, use the money to pay off the first one and purchase a longer and higher rated CD, or buy more? Repeat again and again and again....

 

[bobandsherry]

There is nothing wrong with my credit. Tons of available credit, a long blemish free history and I can't remember ever not paying a credit card in full in the past 40+ years. Also, I didn't say it would impact my insurance rating, especially since it was relatively short term in duration.

The point is, 37 is not "maybe a couple points" on the post where you called someone silly for bringing it up.

As I said, the simulator I used showed 15 point change. So you can debate what a "couple of points" is, should I have said a handful? But 15 points doesn't move the needle on credit rating used for insurance purposes. Nor would 37 points. So overall that was just a silly comment.