by Quentin Fottrell
‘My credit union credit card allows me to make a balance transfer once a year at 0% financing with no fees.’
I am a 53 year old single male with very little savings. I paid off all my credit card debt a few years ago. I have now decided to buy a house. My rent has gone up so much it’s almost like a mortgage, so I’m buying a house. I’m trying to pay off the mortgage as soon as possible.
With my Credit Union credit card, I can make a balance transfer once a year for 0% financing without any fees. This is a very high credit limit and I was thinking of taking it and keeping it on the mortgage to pay off the mortgage as soon as possible instead of paying extra to the mortgage company every month.
By doing this, I can pay off the card over the course of the year and save a lot on mortgage interest. My calculations for paying the weekly principal mean that the house could be paid off in less than seven years. I think it would be a bit better with a larger prepayment. Just wanted to know your opinion on the subject.
Here are my numbers: a $260,000 30-year mortgage with monthly payments of $1,390 per month. If I pay an extra $2,500 a month, I can pay it off in about seven years. But paying the $25,000 once a year might be a bit hasty.
become a homebuyer
Dear Home Buyer,
First, let’s talk about your basic plan: By taking out a 0% loan on your credit union card for your down payment, you’re robbing Peter to pay Paul. But in this case, you are both Peter and Paul. I’m sorry to burden you with Dostoyevsky, but you must tread carefully as you risk committing to both a mortgage and a loan. If you later default, you’ll have to pay a hefty payment after that 0% interest expires.
In practice, your bank will absolutely (I can say that with 99.999% certainty) not accept credit card payments as a deposit. Your financial institution wants to know if your credit and bank account is healthy. The deposit is a vote of confidence and should come from your savings and not your credit card. When you apply for a loan, the bank will also conduct a forensic examination of your finances before approving a mortgage.
I’m not the only one ringing the warning bell. “Dangerous turn!” Says New York bankruptcy attorney David Waltzer. “What happens if you default on just one payment and the zero interest rate jumps to 18%? What if you have a hard time again and can’t cash out the card on time? These credit card companies regularly check your creditworthiness, even if you make all payments on time and in full.”
Credit card companies also have a lot of fine print. “You plan to transfer a low balance loan to another low balance card. But what if that new low-interest offer never arrives? You can’t make credit card payments now — and you’re going to be stuck with the mortgage forever,” says Waltzer. “I have filed tens of thousands of bankruptcies in New York and New Jersey. A lot of them were for people trying to do what you describe.”
David B. Rosenstreck, founder and director of Wharton Wealth Planning in Santa Fe, NM, warns of the impact it can have on your credit score. “According to myFICO.com, 30% of your FICO score is based on data that includes your utilization,” he said. “Credit utilization rate refers to the amount of available credit you use when calculating your score. You want to keep this utilization below 10% if your goal is to keep your score well above 700. have to hold.”
Additionally, investing in a down market can also pay dividends, provided you have time for stocks to recover and the tolerance to weather further downside. “A 30-year mortgage gives you 30 years to beat your mortgage rate,” Rosenströck said. “In general, you should not neglect the contributions to the retirement account in order to pay off your mortgage early. It is also important to always keep an emergency reserve. Amortize your mortgage too quickly at the expense of your emergency reserve.” This can cause problems if unforeseen events occur.”
Your basic monthly repayment looks a little optimistic. Talk to a financial advisor about your goals and your reasons for becoming a homeowner. The main disadvantage here is your salary and, to a lesser extent, the possibility of an inheritance. Please seek advice from an advisor before boarding. Disclose your finances, your hopes and your dreams, especially as you aim to reach retirement age and see yourself working beyond the traditional retirement age.
I fully support your desire to buy a home. Let’s say you work for the next 15 to 20 years: you’ve not only earned this equity in your home with your monthly mortgage payment, but also in your home, which is likely – or very likely – to be worth during that time. If you want to cash out and move to a smaller house, you have more options. With inflation and hopefully a higher salary, you may also find that your mortgage payments become manageable.
You are 53 years old. You don’t have to pay off this loan in seven years and you don’t have to take out any more loans. If your mortgage administrator allows it, paying a regular amount on your mortgage — assuming you’re also paying interest at the same time — can be more effective than an annual lump sum. For those who can afford to pay extra, both are a good idea as long as you make sure you have basic necessities like an emergency fund.
“If the goal is to pay off the mortgage faster, ask your lender if you can make additional principal payments and if there are any prepayment penalties,” said Jennifer Weber, vice president, financial planning, Weber Asset. Management. “If you only pay the principal, you save on interest and can pay off your mortgage early. If allowed, you can increase your monthly payments or make a larger annual lump sum payment directly to the mortgage company. ”
Waltzer pays more attention to the advantages of home ownership than I do. He warns that if you have poor credit, your mortgage interest rate can also exceed 5%. “The cost of owning a home is always higher than expected,” he says. “If you’re buying a $260,000 house, I think you’re paying 10% ($26,000). But the closing costs will be quite high. So you’re probably looking closer to $40,000. Is it your mortgage? get wrapped up?”
Greg McBride, Chief Financial Analyst at Bankrate.com, says: “Home ownership comes with a lot of expenses beyond regular monthly mortgage payments, and it’s these irregular, unplanned, and sometimes significant expenses that undermine financial progress be able. The best antidote to this — and especially for someone with a history of credit card debt — is to build an emergency savings fund. Without sufficient contingency funds, even the best plan fails in an unplanned expense.”
Determine all your options: 15 years versus 30 years; The pros and cons of saving that money instead of paying extra; insurance and wealth taxes; repair at home; closing costs; and possible bidding wars. Shorter term – 15-year mortgage instead of 30-year mortgage – lower interest payments. Still, interest rates are rising: Monthly mortgage payments with a 30-year mortgage rate and a 20% down payment are about 50% more expensive than they were a year ago.
Finally, the manist is (mostly) an optimist: you can’t stay single forever.
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