Keep second mortgage or move over to credit card?
Monday, 31. May 2010
I know this is probably not a good idea, but I’d like to understand why I shouldn’t do it. I have a 30k second mortgage at 8.38%. I have more than 30k on a credit card that has a balance transfer offer with a 5.99% and no fees. I know I’d lose the tax benefit, but wouldn’t the savings benefit exceed the tax benefit? By the way, I rarely exceed the standard deduction.
By the way, I have no balance on the credit card.
SmartA$$ Says:
I wouldn’t even consider doing that. The 5.99% interest rate on the card is probably a variable rate, or an introductory rate. Even if its a fixed rate for the life of the balance transfer, they can still raise the interest rate if you are late (it will say so somewhere in the fine print).
What if your power goes out and you can’t get online to make your payment on the card? What if you get in a car accident and end up spending a week in the hospital, so you aren’t home to mail your payment? If the balance is on a 2nd mortgage, you’ll pay a small late fee and move on with life. If the balance is on a credit card, you’ll receive no mercy and your interest rates will go through the roof.
I see your point, the math makes it look like a good idea, but its not wise to look at the math alone when making financial decisions. You must also consider the risk involved. And the risk is huge when you are talking about putting $30k on a credit card.
Another thing to consider, is your credit score. Having a $30k mortgage won’t hurt your score too much. But if you have a credit card maxed out with a $30,000 balance, it will hurt your credit score big time.
Bottom line, I wouldn’t do it.
James E Says:
I don’t think its a wise choice at all. A) as stated, your mortgage interest is tax deductible (should be around $750 annually savings on your taxes) and B) credit card rates can change! Miss a payment, they can raise your interest rate. Late on a payment, they can raise your interest rate.
No way in hell I would do that deal!
Just my 2 cents.
golferwhoworks Says:
you are crazy if you even think one more second about this as the Credit card is revolving and the second is a fixed term with a fixed rate and in case you have not heard many CC company’s are raising interest rates so people do not put high balances on them
I am a mortgage banker in TN & KY
Dr. Diagnonsense Says:
Credit card companies will raise your rates if your credit score changes for any reason, and the type of chance you suggest could well impact your score even though you think you’re just trading one kind of debt for another.
Furthermore, it takes a huge reduction in interest rates to make your proposal worthwhile. If you paid this loan off over five years at 8.38%, you’re paying about $614/mo, at 5.99%, you’re paying 579.84/mo. That’s a savings of about $400/year. Is that really worth risking a fixed interest rate on your loan for a credit card rate that can change?
Do the math yourself: http://www.bankrate.com/brm/cgi-bin/apr.asp