Use credit card check for house down payment - good idea?
My wife and I were kicking this idea around and wanted to get some
outside input. We're buying a home for about $140K. We are able to put 20% down so we won't have to pay PMI, but I'd like to drop my monthy payment even further. We have zero credit card debt now, and an excellent credit score. We were thinking about borrowing enough on one of the credit cards to put down $10K more on the house, and purchase 2 discount points. Before this idea we were not planning on purchasing any discount points (don't really have the money after the 20% down) We have a credit card convenience check for 3.99% until the balance is paid off. So its cheap money. Yes the interest won't be tax deductible, but the interest portion is only $20 a month, so I'm not concerned about that. We'd pay off the credit card loan in 5 years - thats where my $20 a month in interest figure came from, I'm not sure its completely correct. 5 years is the break even point for the discount points, too. So after the 5 year period the extra credit card portion of the house payment would be gone and we would end up with a house payment that is $230 less than without borrowing the credit card money. Thats almost a 25% reduction. The downside is that if our payment is even 1 day late the interest rate will probably jump up to 16% or something. I'll cross that bridge if I get to it, but we don't plan on being late. So is this crazy or what? Thanks in advance for your input. |
Use credit card check for house down payment - good idea?
It sounds good but as someone who has done a lot of reno on plastic, I
suggest you simplify things and just get a normal mortgage. AT most, finance the points. Note that the mortgage company will want to know what you're doing getting a cash advance and that in many cases, they won't let you borrow the down payment, which is what you'd be doing. Sleep at night, keep it simple... |
Use credit card check for house down payment - good idea?
If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller mortgage or make prepayments as you go along. An advantage to prepayments is that if your cash flow gets tight, you can suspend making them. Una |
Use credit card check for house down payment - good idea?
In article , Una wrote:
If you are going to prepay, then prepay the principal, not the interest. Which means: do not buy points! Get a smaller mortgage or make prepayments as you go along. An advantage to prepayments is that if your cash flow gets tight, you can suspend making them. I disagree with this advice. Buying down the rate can save thousands over the life of the loan. Dimitri |
Use credit card check for house down payment - good idea?
(D. Gerasimatos) writes:
In article , Una wrote: If you are going to prepay, then prepay the principal, not the interest. Which means: do not buy points! Get a smaller mortgage or make prepayments as you go along. An advantage to prepayments is that if your cash flow gets tight, you can suspend making them. I disagree with this advice. Buying down the rate can save thousands over the life of the loan. But, does anyone really know the life of their loan? A pay down in principal lowers interest and reduces how much you owe, and directly increases your equity in the house. A buy down of an interest rate only saves you money IF you stay in the house and keep that loan for a relatively long time horizon. Statistically, very few people stay in teh same place long enough to make a 2 point paydown worth it, and even if they do, they'll typically find themselves refinancing for one reason or another at least once during their stay in that residence. Best Regards, -- Todd H. http://www.toddh.net/ |
Use credit card check for house down payment - good idea?
In article ,
(D. Gerasimatos) wrote: In article , Una wrote: If you are going to prepay, then prepay the principal, not the interest. Which means: do not buy points! Get a smaller mortgage or make prepayments as you go along. An advantage to prepayments is that if your cash flow gets tight, you can suspend making them. I disagree with this advice. Buying down the rate can save thousands over the life of the loan. But in general, the cost of the points is not worth the savings in interest. -john- -- ================================================== ==================== John A. Weeks III 952-432-2708 Newave Communications http://www.johnweeks.com ================================================== ==================== |
Use credit card check for house down payment - good idea?
If you a purchasing a home for 140K with 20% down, the amount you will
need to finance will be 112K. If you are interested in purchasing two discount points to purchase down the rate even further, your cash investment will only be 2240.00 not 10K (1 discount point = 1% of the loan amount). Who told you that the cost of two discount points on a 112K loan is 10K? If the lender did, proceed with caution or reconsider your choice in lenders (because it appears that they are building added profit for themselves in the discount point allocation). Before you decide to invest in discount points, I suggest you that figure out the breakeven point (the breakeven point is the amount of time you need to hold the mortgage before it makes sense to pay discount points). To determine this, you will need to know the following data; interest rate without discount points and interest rate with discount point. I'll make some assumptions to demonstrate how to calculate the breakeven point. Let's assume that you have been offered the following: Loan amount: 100K Option 1: 6.75% with 0 points OR Option 2: 6.50% with 2 points Cost of 2 Discount Points: 2000 Option 1 Payment: 648.60 Option 2 Payment: 632.07 Difference Between Option 1 and Option 2 Payments: 16.53 Breakeven Point (Cost of Discount Points / Payment Difference) In this example, the borrower would need to hold the mortgage for approx. 121 months or 10 years in order for the investment in discount points to make sense. Does it makes sense to invest in discount points? The answer is dependant on how long you intend to hold the mortgage and stay in the property. As to your method to finance discount points, you have already noted that it has one flaw (if you pay late, your interest rates will be adjusted upward). As the true cost of 2 discount points on a loan amount of 112K is only 2240.00, this approach is OK, but there are other alternatives that are more beneficial. If you are invested in 401K plan at work, you could consider borrowing from it to finance the cost of the discount points. The benefits to this approach is that the interest charged for the 401K loan is reinvested back into your 401K. Simply put, rather then paying the credit card co. principal and interest payments for their sole benefit, you will be paying yourself principal and interest payments and reinvesting the same back into your retirement fund. This approach doesn't make sense if job stability is in question, because you would be subject to early withdrawal penalties after you have been terminated from your job. As an other poster has already suggested, comparison shopping with other lenders always makes sense and goes a long way to ensuring that you are getting the best offer. Regards, H. Scott Miller National Commercial and Residential Lender/Broker Carteret Mortgage TOLL FREE PHONE#: 1.877.716.6495 TOLL FREE FAX#: 1.877.578.2041 EMAIL: Real Estate Help Desk (www.RealEstate-IQ.com) Virtual Loan Assistant (www.EZMortgageLoanz.com) wrote: My wife and I were kicking this idea around and wanted to get some outside input. We're buying a home for about $140K. We are able to put 20% down so we won't have to pay PMI, but I'd like to drop my monthy payment even further. We have zero credit card debt now, and an excellent credit score. We were thinking about borrowing enough on one of the credit cards to put down $10K more on the house, and purchase 2 discount points. Before this idea we were not planning on purchasing any discount points (don't really have the money after the 20% down) We have a credit card convenience check for 3.99% until the balance is paid off. So its cheap money. Yes the interest won't be tax deductible, but the interest portion is only $20 a month, so I'm not concerned about that. We'd pay off the credit card loan in 5 years - thats where my $20 a month in interest figure came from, I'm not sure its completely correct. 5 years is the break even point for the discount points, too. So after the 5 year period the extra credit card portion of the house payment would be gone and we would end up with a house payment that is $230 less than without borrowing the credit card money. Thats almost a 25% reduction. The downside is that if our payment is even 1 day late the interest rate will probably jump up to 16% or something. I'll cross that bridge if I get to it, but we don't plan on being late. So is this crazy or what? Thanks in advance for your input. |
Use credit card check for house down payment - good idea?
$cott wrote: If you a purchasing a home for 140K with 20% down, the amount you will need to finance will be 112K. If you are interested in purchasing two discount points to purchase down the rate even further, your cash investment will only be 2240.00 not 10K (1 discount point = 1% of the loan amount). Who told you that the cost of two discount points on a 112K loan is 10K? If the lender did, proceed with caution or reconsider your choice in lenders (because it appears that they are building added profit for themselves in the discount point allocation). No, the $10K was going to be an extra down payment. I was also considering purchasing 2 points, bring the total amount borrrowed on the card to around $12200. The break even point on the points is 5 years, I'm still not sure if I want to do that... Put putting the extra $10K now, and paying that off in 5 years, and then continuing to pay that same full amount each month by putting the extra towards the mortgage after the CC is paid off - works out to paying off the morgage 4 years faster than just paying the extra payment alone. -Ryan |
Use credit card check for house down payment - good idea?
"$cott" writes:
[very useful, informative information snipped] H. Scott Miller National Commercial and Residential Lender/Broker Carteret Mortgage TOLL FREE PHONE#: 1.877.716.6495 TOLL FREE FAX#: 1.877.578.2041 EMAIL: Real Estate Help Desk (www.RealEstate-IQ.com) Virtual Loan Assistant (www.EZMortgageLoanz.com) Other lenders, take note... THIS is how you participate in Usenet, and perhaps pick up some business as a side effect to being a genuinely helpful, reasonable participant in the newsgroup. Kudos Scott. -- Todd H. http://www.toddh.net/ |
Use credit card check for house down payment - good idea?
Todd H. wrote:
Other lenders, take note... THIS is how you participate in Usenet, and perhaps pick up some business as a side effect to being a genuinely helpful, reasonable participant in the newsgroup. Kudos Scott. I agree. If only we could get him to STOP TOP POSTING. |
Use credit card check for house down payment - good idea?
On 21 Jun 2006 05:52:30 -0700, "$cott"
wrote: [stuff cut] If you are invested in 401K plan at work, you could consider borrowing from it to finance the cost of the discount points. The benefits to this approach is that the interest charged for the 401K loan is reinvested back into your 401K. Simply put, rather then paying the credit card co. principal and interest payments for their sole benefit, you will be paying yourself principal and interest payments and reinvesting the same back into your retirement fund. This approach doesn't make sense if job stability is in question, because you would be subject to early withdrawal penalties after you have been terminated from your job. The other serious drawback to this approach is the lost earnings opportunity, which many people overlook in their zeal to find cash. Be very careful before taking this option. |
Use credit card check for house down payment - good idea?
"John A. Weeks III" wrote in message ... In article , (D. Gerasimatos) wrote: In article , Una wrote: If you are going to prepay, then prepay the principal, not the interest. Which means: do not buy points! Get a smaller mortgage or make prepayments as you go along. An advantage to prepayments is that if your cash flow gets tight, you can suspend making them. I disagree with this advice. Buying down the rate can save thousands over the life of the loan. But in general, the cost of the points is not worth the savings in interest. Like most things, it depends. I had my loan officer crunch the numbers both ways, and the payback period was only a couple of years. I plan on keeping the house 7-8 years minimum, so it was a no-brainer. And unless something major happens, I don't see refinancing as likely, since I got my paper at very close to the low point. I don't think I'll see 5.4 again anytime soon. Once I get past these initial PM repairs, I plan to start throwing extra against principal. aem sends.... |
Use credit card check for house down payment - good idea?
"Travis Jordan" wrote:
I agree. If only we could get him to STOP TOP POSTING. Or get people to use an intelligent newsreader that handles threaded messages properly, in which case top posting is very useful and polite. |
Use credit card check for house down payment - good idea?
In article ,
John A. Weeks III wrote: In article , (D. Gerasimatos) wrote: In article , Una wrote: If you are going to prepay, then prepay the principal, not the interest. Which means: do not buy points! Get a smaller mortgage or make prepayments as you go along. An advantage to prepayments is that if your cash flow gets tight, you can suspend making them. I disagree with this advice. Buying down the rate can save thousands over the life of the loan. But in general, the cost of the points is not worth the savings in interest. Like someone else said, it depends. I just did a sample loan at eloan.com using a hypothetical $315,000 mortgage. Right now, one can save 0.5% interest by buying 1.5 points on a 30 year fixed mortgage. With points, the payment is $1991/month. Without the points, the payment is $2096/month. The points cost $4725. The breakeven point is after about 4 years (45 months). This isn't accounting for having the $4725 invested for 4 years, nor for having the $105/month invested. I am also not taking into account tax deductions (both for the points and interest paid). Still, 4 years is not that long. Most people move after 7 years. I have seen scenarios (depending on the mortgage market) in which the situation can be even better than this particular example. Dimitri |
Use credit card check for house down payment - good idea?
Clark W. Griswold, Jr. wrote:
"Travis Jordan" wrote: I agree. If only we could get him to STOP TOP POSTING. Or get people to use an intelligent newsreader that handles threaded messages properly, in which case top posting is very useful and polite. If you feel strongly about that perhaps you'd like to submit an update to the RFC. In the meantime.... http://tools.ietf.org/html/1855 If you are sending a reply to a message or a posting be sure you summarize the original at the top of the message, or include just enough text of the original to give a context. This will make sure readers understand when they start to read your response. Since NetNews, especially, is proliferated by distributing the postings from one host to another, it is possible to see a response to a message before seeing the original. Giving context helps everyone. But do not include the entire original! |
Use credit card check for house down payment - good idea?
The other serious drawback to this approach is the lost earnings opportunity, which many people overlook in their zeal to find cash. Be very careful before taking this option. Lost earnings opportunity in the stock market? Sounds like oxymoron to me. With the majority of blue chips paying less then 1% in dividends (please don't state the exceptions, because I understand there are those rarities), the only "earnings opportunity" in the stock market is appreciation. Most 401K loans are levied with an interest rate upwards of 8%. So, let's recap...He borrows tax deferred money from himself at anywhere between 6-8% and the interest charged is reinvested back into his retirement fund. Unlike your definition of "earnings opportunity" which is speculative in nature, this is guaranteed (unless he doesn't repay it). Sorry for the top posts guys! Regards, H. Scott Miller National Commercial and Residential Lender Carteret Mortgage TOLL FREE PHONE#: 1.877.716.6495 TOLL FREE FAX#: 1.877.578.2041 EMAIL: Real Estate Help Desk (www.RealEstate-IQ.com) Virtual Loan Assistant (www.EZMortgageLoanz.com |
Use credit card check for house down payment - good idea?
Other lenders, take note... THIS is how you participate in Usenet, and perhaps pick up some business as a side effect to being a genuinely helpful, reasonable participant in the newsgroup. Kudos Scott. -- Todd H. http://www.toddh.net/ Thank you for the endorsement; I'm happy to hear that some appreciate and benefit from my advice. H. Scott Miller National Commercial and Residential Lender/Broker Carteret Mortgage TOLL FREE PHONE#: 1.877.716.6495 TOLL FREE FAX#: 1.877.578.2041 EMAIL: Real Estate Help Desk (www.RealEstate-IQ.com) Virtual Loan Assistant (www.EZMortgageLoanz.com) |
Use credit card check for house down payment - good idea?
$cott wrote:
Sorry for the top posts guys! Thanks for following 'netiquette, Scott. That is very professional of you. |
Use credit card check for house down payment - good idea?
wrote in message
ups.com... We're buying a home for about $140K. We are able to put 20% down so we won't have to pay PMI, but I'd like to drop my monthy payment even further. We have zero credit card debt now, and an excellent credit score. We were thinking about borrowing enough on one of the credit cards to put down $10K more on the house, and purchase 2 discount points. I don't know if this is the same everywhere, but when we bought our house, one of the forms we had to fill out was a sworn affidavit that the money we were using for the down payment was our own, and was "not borrowed in any way." Even if your house doesn't come with such a form, I would think that what you're proposing to do is to borrow money at high interest in order to reduce the amount of money you need to borrow at lower interest. Sounds like a mistake to me. |
Use credit card check for house down payment - good idea?
I don't know if this is the same everywhere, but when we bought our house,
one of the forms we had to fill out was a sworn affidavit that the money we were using for the down payment was our own, and was "not borrowed in any way." Even if your house doesn't come with such a form, I would think that what you're proposing to do is to borrow money at high interest in order to reduce the amount of money you need to borrow at lower interest. Sounds like a mistake to me. You may not have seen my original post. My down payment is my own and not borrowed, the whole 20%. The $10K of *extra* down payment would be borrowed, and I'm pretty sure my banker would not have a problem with that. I would get approval of course. Also I said the credit card rate is *lower* than the mortgage, not higher. 3.99% vs 6.375%. After much consideration we are probably not going to do it. There are other things we'll want to do to the house soon (make the garage larger for one - I don't know how people get by with a regular two car garage) and we don't want that extra $10k of debt preventing us from doing it. |
All times are GMT +1. The time now is 02:35 PM. |
Powered by vBulletin® Copyright ©2000 - 2024, Jelsoft Enterprises Ltd.
Copyright ©2004 - 2014 DIYbanter