Using a 0% 12 month credit card check on a mortgage? (PMI, home loan, interest rate)

[robwmu]

Here is my situation...

I live below my means and like it that way. I have a $100,000 condo in MI and currently owe 88,000 on it. I really would like to remove the escrow for taxes ($150 a month) and PMI now ($71 a month) by getting the mortgage down to $80,000 (80% and both drop off).

I am thinking of a somewhat risky plan and would like to hear your thoughts.

Keep this in mind:

- I am young (27) and have only had this mortgage for 2 years now.
- My credit is pretty much flawless... last score I saw was in the mid 700s.
- I have no credit card debt
- I am not worried about taking a hit on my credit score
- I have about 5k in savings in case of emergency
- I may get a roommate soon to really allow me to overpay on the mortgage even more
- I want to have this mortgage paid off in ~ 5 years if possible

So, the plan is to take a 0% 12 month check from a credit card I have and write an $8,000 check to pay my mortgage next month, which gets rid of the escrow and PMI. The escrow has a balance right now to cover all of my 2008 taxes. Then instead of simply paying back the card right away, I will put the money in my savings account, which yields just over 3% right now. I figure why pay the 0% card instead of making some interest on my money instead. Then take whatever I have in savings (it would be over 8k at that point and simply pay off the balance of the check). I would still be making my regular mortgage payments, which would reduce the principal even more during the time. Paying 8k right now also lets each of those payments hit more principal each time.

Then the following year, I would repeat the process again just to get each regular payment to hit more principal each month and to gain some interest in my saving account as an added bonus. Then pay of the 0% card again with the savings account just before the promotion ends.

It may sound risky but it seems like a great idea...

Should I do it? Anybody go through with something similar? It is all about having the money work for me more than simply making my scheduled payments, which only hit like $130 in principal each month :-P

[Daddys///M3]

I think that job stability, amount of disposable income, amount currently in savings, and future savings should be reviewed very carefully before doing something like this. If you are certain that your job is not going anywhere, have a bit of disposable income as it is, and have the complete CC payoff as well as 6 months worth of living expenses in the bank, then it might not be a bad idea. By setting up these sorts of parameters, you reduce your risk a bit. I wouldn't be willing to advise one way or another on this one though.

[Aussie_Bob]

Do you not have to pay off a minimum monthly payment on your credit card to keep the 0% interest? Usually you need to pay off something.

[DanielChang]

A lot of credit card companies may charge 0% interest, but charge a 3% transaction fee for the check advance.

[cardinal2007]

The transaction fee is usually where they make the money, (that and their hope that you mess up and they charge the purchase APR on a late fee until you pay it off). If you want to do that try to pick one that has no transaction fee, or a cap on it usually that is $75 or $99 but lately CC companies have been removing that provision charging the whole 3%.
Opening a new account for this would worsen your FICO score, and reduce slightly the possibility of doing it again the future. Don't count on being able to do it in the future either, as CC companies may decide to cut back on this practice due to rising default levels.
Also like the above said you will need to pay the minimum every month, but that is usually only 1% of balance + interest or 2% of balance, depending on the card. Read all terms and conditions carefully, and make sure you charge NOTHING else to the card as the standard practice for CC companies is to pay off lower interest balance off first, so if you put a $100 purchase and pay that off at the end of the month you will carry a $100 balance on purchases and have payed off $100 from the 0% loan instead.

[Briolat21]

You need to check carefully about escrow dropping off. Because escrow is written into the terms of teh loan, usually you cannot get rid of it simply by having 20% equity in your home. Normally you must refinance to get rid of escrow.

I ran into this issue here - so I am making certain I will not have escrow in the first place.

[robwmu]

Good responses. I believe the fee is 3% for up to $75 max. I would need to throw this card in a drawer or something until the balance is paid in full... I forgot how payments go against charges with the lowest interest rate first. I also forgot about the minimum payments, but that shouldn't be a big deal.

So far I am leaning towards doing this!

[Tressa]

Briolat is correct in mentioning the escrow may not be changed to allow for the reduction of PMI insurance. I recently quailified for a home loan FHA they require you to pay 5 years of PMI no and if or buts about it, my credit score is in the high 700's I've never been penalized with an extra charge such as the PMI. so you may want to look into it before you make your changes, beside you can write that off on your taxes for the time being.

[Tressa]

If your loan will allow you to pay down to allow removal of the PMI and you can do it with a 0 interest card and able to pay it off in the term of the 0 interest card, that is something that I might entertain but would have to of course analysis it to death first but thats how I am.

[GLS]

Originally Posted by robwmu

Here is my situation...

I live below my means and like it that way. I have a $100,000 condo in MI and currently owe 88,000 on it. I really would like to remove the escrow for taxes ($150 a month) and PMI now ($71 a month) by getting the mortgage down to $80,000 (80% and both drop off).

I am thinking of a somewhat risky plan and would like to hear your thoughts.

Keep this in mind:

- I am young (27) and have only had this mortgage for 2 years now.
- My credit is pretty much flawless... last score I saw was in the mid 700s.
- I have no credit card debt
- I am not worried about taking a hit on my credit score
- I have about 5k in savings in case of emergency
- I may get a roommate soon to really allow me to overpay on the mortgage even more
- I want to have this mortgage paid off in ~ 5 years if possible

So, the plan is to take a 0% 12 month check from a credit card I have and write an $8,000 check to pay my mortgage next month, which gets rid of the escrow and PMI. The escrow has a balance right now to cover all of my 2008 taxes. Then instead of simply paying back the card right away, I will put the money in my savings account, which yields just over 3% right now. I figure why pay the 0% card instead of making some interest on my money instead. Then take whatever I have in savings (it would be over 8k at that point and simply pay off the balance of the check). I would still be making my regular mortgage payments, which would reduce the principal even more during the time. Paying 8k right now also lets each of those payments hit more principal each time.

Then the following year, I would repeat the process again just to get each regular payment to hit more principal each month and to gain some interest in my saving account as an added bonus. Then pay of the 0% card again with the savings account just before the promotion ends.

It may sound risky but it seems like a great idea...

Should I do it? Anybody go through with something similar? It is all about having the money work for me more than simply making my scheduled payments, which only hit like $130 in principal each month :-P

Years ago I did something similar by taking out 90 day, no interest loans from Household Finance to purchase furniture when I was just starting out.
I am an extremely organized disciplined person and always made the payment on the 89th day, so it worked. However, I felt the mental stress as the deadline was coming up. I also would add that Household Finance made big dollars on people that went over the 90 days. What is your interest rate and/or penalty if you can't make the deadline? As one person mentioned job stability, you also need to contingency plan for illness or disability, although job loss is the most common risk.

Finally, although I understand the financial and psychological value of paying off the mortgage, you are really just transferring part of the mortgage as a "second" to the credit card company. You are creating a balloon payment with a firm deadline. Why not continue saving and pre-paying principal, or wait until you get a roomate to accelerate your payments? You appear to be doing very well without incurring the additional stress for a few dollars after taxes. Good luck.