Yes, credit card. You probably heard the legend of “pay off your mortgage 5 to 7 years with HELOC”. I once wrote paying off a mortgage with your own money with even shorter time and less interest paid. The whole idea behind the paying off a mortgage with your own money is to not paying a penny more of interest than the interest from a mortgage, which is the biggest positive side. Not only you are paying faster but probably the lowest cost (in terms of paying interest) on an individual.
I just got another idea that can be utilized that I think it would be still lower cost than utilization of HELOC. As you see the title, utilization of credit cards! Yes, credit cards! Generally, a credit card interest rate is somewhere between 20% to 30%. How is that lower cost? Well, I am not talking about the “cashing out” credit card. I am referring to balance transfer with 0% balance transfer interest. Most of the balance transfer with introductory 0% interest involves with a one-time fee of 3%. Sometimes, 2%. I checked several credit cards and many offers 3 to 5% fees. And most of the balance transfer is 10 to 18 months no-interest. Here is the scenario.
Once again, the basic concept of paying down mortgage is nothing different from HELOC and using your own money. You do the balance transfer of $10,000 to your mortgage for the 1st month then you pay off your credit card before the credit card charge interest. For my own example, Discover Card offers 0% Promo APR for 12 months with 3% transfer fee. So, if I transfer balance $10,000, Discover Card will charge $300 flat. That $300 is not a compound interest but simple interest. As long as I pay it off within 12 months, I am paying no more than $10,300.
How is this a saving?
I looked at my payment schedule. My 1st payment’s interest is whopping $1738.75!!! When I apply the $10,000 balance transfer to the mortgage on my 1st mortgage payment that amount applies to the 2nd month’s payment. The 2nd month’s interest is $1736.61 and once the $10,000 is applied, it decreases to $1,695.99. That’s $40.62. Eh? That’s all? Well, hold your chair tight! It’s about to get excited!
| Without $10K | With $10K | Savings |
| $ 1,738.75 | $ 1,738.75 | $ – |
| $ 1,736.61 | $ 1,695.99 | $ 40.62 |
| $ 1,734.47 | $ 1,693.68 | $ 40.79 |
| $ 1,732.31 | $ 1,691.35 | $ 40.96 |
| $ 1,730.15 | $ 1,689.02 | $ 41.13 |
| $ 1,727.97 | $ 1,689.68 | $ 38.29 |
| $ 1,725.79 | $ 1,684.33 | $ 41.46 |
| $ 1,723.60 | $ 1,681.98 | $ 41.62 |
| $ 1,721.40 | $ 1,679.61 | $ 41.79 |
| $ 1,719.19 | $ 1,677.23 | $ 41.96 |
| Total | $ 368.62 | |
| Saving | Card Fee | Total savings |
| $ 368.62 | $ 300.00 | $ 68.62 |
Above table is the 1st 10 month of payment with and without $10,000 balance transfer. After the credit card fee of $300, I save $68.62 of the mortgage interest saving. That’s it?! Well… let me forward this to 5th year.
| Without $10K | With $10K | Savings |
| $ 1,596.54 | $ 1,318.31 | $ 278.23 |
| $ 1,593.82 | $ 1,314.46 | $ 279.36 |
| $ 1,591.09 | $ 1,236.97 | $ 354.12 |
| $ 1,588.36 | $ 1,262.93 | $ 325.43 |
| $ 1,585.61 | $ 1,261.87 | $ 323.74 |
| $ 1,582.85 | $ 1,257.80 | $ 325.05 |
| $ 1,580.08 | $ 1,253.71 | $ 326.37 |
| $ 1,577.29 | $ 1,249.60 | $ 327.69 |
| $ 1,574.50 | $ 1,245.47 | $ 329.03 |
| $ 1,571.69 | $ 1,241.33 | $ 330.36 |
| Total | $ 3,199.38 | |
| Saving | Card Fee | Total savings |
| $ 3,199.38 | $ 300.00 | $ 2,899.38 |
Starting from the 5th year’s payment, I am saving almost $3000 even with the balance transfer fee! As the payment goes further, savings compounds!!!
My aim is to do the balance transfer every 10 months or less.
If I pay the mortgage as the schedule is showing, I would end up paying $387,404.61 of interest. If I follow the balance transfer, I only pay $186,570.84. That’s $197,833.77 saving of interest and payment will end on the last month of the 16th year!
Here is the catch. If I don’t pay off the credit card within 12 months, there will be the interest charge of 22%! Thus, I am forced to pay this off within the promotion 0% interest period. However, if I pay off the $10,000 balance transfer faster than 10 months, the savings will be greater and I will be able to pay off the mortgage even earlier.
What is the benefit? I am saving about $200,000 interest and whatever cash I have, I can invest in stock market or crypto. So, this frees my cash savings for higher interest. As long as I am getting higher interest than 4.875%, I win!
Note!!!
I would suggest for you to have $10,000 cash that can be easily accessible to pay off the credit card any time you need to. Put away in a very safe stock or anything that you can maximize benefit from. You can only benefit from this if you pay off the $10,000 within the 0% interest rate.
Sol 