0% mortgage?
You hear all the time about people using taking unsecured debt and turning it into secured debt (by using home equity loans to pay off credit cards) but what would happen if you did the reverse by using unsecured credit cards to pay off your mortgage? (Via 0% balance transfers.)
I’m not actually thinking of doing this, because I’d be worried about the many significant cons (like somehow missing a payment and having the rate spike to 20-something-percent!) but the idea interested me as an exercise. Would it be worth it?
Let’s say I have a 20 year, hundred thousand dollar mortgage at 6% interest that I’ve just taken out, and I can afford to pay an extra $10,000 per year toward the mortgage. My goal is in fact to pay off the mortgage as quickly as possible. In theory I could save money by taking out a $10,000 0% balance transfer each year and applying the $10,000 to the mortgage up front. Then I’d make my normal mortgage payment each month and pay the additional $834 per month to my credit card. What might the results be in an ideal world where nothing goes wrong?
According to Dinkytown’s Mortgage Loan Calculator, if If I paid my normal mortgage payment of $716 plus an extra $834 extra per month to the mortgage company, I would pay $21,028.43 in interest over the term of the loan and I’d be done with the mortgage in 6 years and 7 months.
Here is the amortization table for that scenario from Dinkytown:
Doing the 0% balance transfer thing is harder to figure out. I’d essentially start with a $90,000 mortgage, so (if I’ve figured this right) we’d have something close to this:
| Year | Starting Principal | Mortgage Payments | Approx Interest Paid | Year-end Principal | Less Amount Paid to CC |
| One | $90,000 | $8597 | $5400 | $86,803 | $10,000 |
| Two | $76,803 | $8597 | $4608 | $72,814 | $10,000 |
| Three | $62,814 | $8597 | $3769 | $57,986 | $10,000 |
| Four | $47,986 | $8597 | $2879 | $42,268 | $10,000 |
| Five | $32,268 | $8597 | $1936 | $25,607 | $10,000 |
| Six | $15,607 | $8597 | $936 | $7,946 | $7,946 |
| Seven | $0 | $0 | $0 | $0 | $7,946 |
This would mean that the total interest paid would be approximately $19,528, and the house (plus credit card) would be paid off in 6 years and 5 months. So, two months faster and about $1500 less in interest. Not worth the risk to me, except possibly for the last year of a mortgage.
You might make an argument that you would be MUCH more motivated to pay off that $10k on the CC every year than you might be to pay extra towards your mortgage each month. Sort of touchy, feely argument for it similar to paying the smallest debts first that lots of people encourage. I am considering doing something similar with student loan debt but looking at the dollars and cents calcs, it doesn’t look to be as lucrative as I thought it might be. I’ll have to crunch the numbers and also evaluate if I’ll have the right discipline to NOT do it.
My brother actually paid his home off early with the 0% thing. Of course, he only owed about $36k at the time and was not risking any decent write-off on his return.
I don’t know if I have the Kahona’s to do this though. My mortgage is only just 5.625% so, for now, I’m good.
What an awesome idea! I play the 0% credit card interest game will all bills except my mortgage. Currently, the 0% card I have happens to have reward where I can get a $50 credit towards the principle of my mortgage for every 2,500 points. Needless to say I charge EVERYTHING on this card. Plus, I make minimum payments to this 0% card each month and stash the difference in an online savings account that pays WAY MORE than any local bank. I enjoy taking advantage of credit cards and I hope to continue the same train of thought with my mortgage once my current “scheme” is up (April) and the ‘accumulated debt’ is paid off at the original purchase price (I call it the ‘scheme the ultimate schemers plan’). :-)
I hope to delve deeper into your idea of 0% mortgage idea to see if I can make it work, what the numbers would look like, and perform a risk assessment to see if I am willing to take the chance. I don’t want to sound pessimistic but I live in Silicon Valley (gotta love the cost of our bright blue sky) and a HUGE benefit to me right now is the tax write-off since I have only owned for 1 year and 2 months. This will definitely be a fun exercise if nothing else. :-)