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 to the point where it’s almost as high as a mortgage, and that’s why I’m buying a house. I try to pay off the mortgage as quickly as possible.
My caisse credit card allows me to make a balance transfer to 0% financing free of charge once a year. That’s a really high credit limit, and I was thinking of taking that and putting it on the mortgage as a way to pay off the mortgage sooner, rather than making extra payments every month to the mortgage company.
If I do it that way, I can pay off the card over the course of the year and save a lot of interest on the mortgage. My calculations for paying a weekly principal payment means the house could be paid off in less than seven years. I think it would be a bit better with a large down payment. I just wanted to know your opinion on this.
Here are my numbers: a $260,000 30-year mortgage with monthly payments of $1,390 per month. If I pay $2,500 more per month, I can pay it off in about seven years. But paying $25,000 once a year might be a bit quicker.
Dear Potential Home Buyer,
By taking out a 0% loan on your cashier credit card, you rob Peter to pay Paul. But in this case, you’re both Peter and Paul.
I’m sorry to have all Dostoyevsky all over you, but you have to be careful how you repay this loan, because you might be committing to both a mortgage and a loan. If you fall behind on the latter, you’ll likely face heavy repayments when that 0% interest ends. Also, your bank will not accept a credit card payment as a down payment. When you apply for a loan, they will also do a forensic examination of your finances before accepting a mortgage.
I’m not the only one sounding the alarm. “Dangerous Curves Ahead!” says David Waltzer, a New York-based bankruptcy attorney. “What happens when you’re late with one payment and the zero interest rate jumps to 18%? What happens when you have another tough time and you can’t Paying off the card on time Even if you make all payments perfectly on time, these credit card companies regularly check your credit.
Credit card companies have a lot of fine print. “You plan to transfer a low balance debt to another low balance card. But what happens when that new low interest offer never arrives? Now you can’t make any more payments by credit card — and you’ll have trouble with the mortgage as well,” Waltzer adds. “I’ve filed tens of thousands of bankruptcies in New York and New Jersey. A lot of them were for people who tried to do what you’re describing.
““You rob Peter to pay Paul. But in this case, you are both Peter and Paul. I’m sorry to have all of Dostoyevsky on you, but you have to be careful.”
Your basic monthly repayments seem slightly optimistic. Talk to a financial advisor about your goals and why you’re becoming a homeowner. The big missing piece here is your salary and, to a lesser extent, the prospect of an inheritance. Please seek the advice of an advisor before you start. Lay bare your finances, hopes and dreams, especially where you’d like to be when you reach retirement age, and if you see yourself working beyond the traditional retirement age.
I fully support your wish to buy a house. Let’s say you work another 15 to 20 years: not only will you have acquired this equity in your home through your monthly mortgage payments, but your home will also likely – or very likely – appreciate in value during this period, you giving more options if you want to withdraw money and move to a smaller house. With inflation and hopefully a higher salary, you may also find that your mortgage payments are becoming manageable.
You are 53 years old. You do not have have to pay off that loan in seven years, and you don’t have to accumulate any additional debt. If your mortgage manager allows it, paying down a regular amount on your mortgage—since you’re simultaneously paying interest—may be more efficient 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 the necessities such as an emergency fund.
Waltzer is more cautious about home ownership than I am. He warns that your mortgage interest rate could also exceed 5% if you have a low credit score. “Homeownership costs are always higher than expected,” he adds. “If you buy a house for $260,000, I’m assuming you’ll put down 10% ($26,000). But closing costs will be a bit higher. So you’re probably looking closer to $40,000. Will this be included in your mortgage? »
Present all your options: 15 years versus 30 years; the pros and cons of paying extra rather than saving that money; insurance and property taxes; home repairs; closing costs; and potential bidding wars. The shorter the term (a 15-year mortgage rather than a 30-year mortgage), the lower the interest payment. Yet 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.
And, finally, the Moneyist is an optimist (most of the time): you may not be single forever.
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