Using balance transfer / cash advances

[theSchmett]

So I've got a lot of credit I don't use. No revolving balances. No debt besides a mortgage (argh) and a .9% car loan. Don't facepunch me I'm LEARNING.

So with let's say, $20k of available balance, at zero percent, for 15 months, with a 4% fee for the transfer.  I can pay off $20k in the 15 months.

So how can I use this?? Is it just a bad idea to begin with?

That mortgage I hate has PMI attached, I was thinking I could pay down my principal in one shot, lower my PMI and avoid 15 months worth of extra payments.

Any thoughts? This has been kind of nagging at me for awhile, these checks keep coming...

[secondcor521]

What's the rate on the mortgage, and is it fixed or variable?

[theSchmett]

Fixed rate mortgage, 5.125%, about $300k left on it, and I pay like, $225 a month PMI.

OK commence facepunching.

Besides the house we live fairly below our means. No cable TV (everything via internet), only debt is the one low interest car loan (and we'll keep that Honda Fit for 10 years) and the mortgage. And while yes, the house is kind of expensive, its in North Jersey and prices here are nuts. The house is well under 1200 sqft, and on 1/8th of an acre. We bought a decent neighborhood, a nice town, and a train station.

[secondcor521]

I won't facepunch you.  I don't really swear either, so I guess I'm an oddity here in those respects.

If I put myself in your shoes, I guess I would think about a couple of things.  First, how secure is my income stream?  I would need to be really secure in my income stream before doing something like this.  Second, I would look at how close I was to getting rid of PMI.  If taking that $20K would get rid of PMI immediately, then I'd be pretty tempted.  Third, I would consider income taxes.  You're probably getting a federal and state tax deduction on the 5.125%, so your effective after tax rate is actually probably in the high 3-ish%.  Paying 4% lump sum after tax may not even make financial sense in the first place.

Oh, and I'd also have to be very confident in my self control, to make sure I executed on my plan perfectly.  I'm half-Vulcan that way and can do it, but almost everyone I know would get distracted by some other financial goal, change their minds, buy some more stuff, or do something else to screw it up.

I get offered CC deals at 3% pretty regularly, so you may want to wait until they offer you something like that, or even apply for a 0% balance transfer CC and hope to get a big enough line to do what you're talking about.

One other thing to note:  Taking the whole credit line in a cash advance will trash your credit score for a while due to a high credit utilization percentage.  I'd want to make darn sure that I wasn't going to borrow anything else for the next 15 months.

Finally, at some point you hopefully will realize that the principal balance matters a lot more than the interest rate.  Shifting $20K from 5.125%+PMI%-tax deductible% to 4%/15 months is only probably going to net you maybe $1K, and there is hassle and risk involved.  That $1K is 1/3 of 1% of your outstanding balance.  In other words, you're playing at the margins really with this idea.  Which I used to do too, so I won't say it's a bad idea.  It's just not really going to change your financial future much one way or the other.

Good luck with whatever you decide to do.

[theSchmett]

secondcor521 I appreciate the insight.

So yes, I figured I was playing with a slim margin, so its not really worth the assumed risk. I too am kind of "half vulcan" about my spending. I am not necessarily very mustachian but my transgressions are on the smaller side, and the one time I took advantage of these offers, to pay for my final semester of school, I paid it off without any interest beyond the 4%. Worked out very well.

The thing that will hold me back from trying to take advantage of this slim margin is the unexpected. Sickness, injury, etc... no reason to put myself into a potentially unstable position for 15 months for such a small gain.

What I will likely do instead is simply try to pay down the principal faster, not keeping much cash on hand, knowing that if something horrible did happen my safety net, temporary as it is, would be these advances. While its not recommended my credit is good enough (800+) and family income stable enough (I sure hope!) that we can use the credit as an emergency fund.

[huadpe]

secondcor521 I appreciate the insight.

So yes, I figured I was playing with a slim margin, so its not really worth the assumed risk. I too am kind of "half vulcan" about my spending. I am not necessarily very mustachian but my transgressions are on the smaller side, and the one time I took advantage of these offers, to pay for my final semester of school, I paid it off without any interest beyond the 4%. Worked out very well.

The thing that will hold me back from trying to take advantage of this slim margin is the unexpected. Sickness, injury, etc... no reason to put myself into a potentially unstable position for 15 months for such a small gain.

What I will likely do instead is simply try to pay down the principal faster, not keeping much cash on hand, knowing that if something horrible did happen my safety net, temporary as it is, would be these advances. While its not recommended my credit is good enough (800+) and family income stable enough (I sure hope!) that we can use the credit as an emergency fund.

I think you need to slow down and take a deep breath re: the PMI.  It is not worth being safety-net-less just to pay this off a little quicker.  What is your monthly surplus currently?  I would probably just make your payments and save up a cushion of 3 months expenses or so, then go into more of an attack on the debts.  You might want to look at a straight up refi of the mortgage, since if your credit is excellent you can probably get it down to 4% or so on a 30 yr fixed.  If it's an FHA, also look into an FHA streamline, which won't get the rate quite as low, but will not have closing cost and can be done even if your loan is a high percentage of the value.

Values have also been going up in North Jersey, so you might be able to refi with no PMI if you get a high appraisal.

[Chiron]

The 4% BT fee kills the potential savings from this.  If you really want to do this (and I would make sure you will have the cash to pay off the balance at the end of the offer period if you do), get the Chase Slate card that offers no fee BTs with 0% intro rate.  A couple of other considerations: your credit score will suffer while you keep a balance on the card at a high utilization.  If your credit and income are good, I would try to obtain other lines of credit to offset this effect.  In the mid-2000s, there were plenty of "BT hackers" who would take advantage of no fee, 0% BT offers and stash the money in guaranteed accounts then-yielding 4-6%.  Some were able to do this at a 7-figure level.

Like others suggested, also look at refinancing your mortgage.  You should be able to get a sub-4 rate right now and may be able to get an appraisal to reduce the cash you need to put into the house to eliminate PMI.

[theSchmett]

All good things to think about.

The Refi option - the few lenders I've spoken to haven't been particularly helpful I think I need to do some more looking. I always get the sense they don't want to do anything but straight up fixed rates, and the rate is never as good as I read that it is. It may be that when we bought the house we did it at 95% LTV (5% down) and while the market didn't tank where I live, it hasn't been up. At all.

We've made some strong improvements to the place (new efficient GAS heat (old oil) all new appliances, and Central Air (that wasteful wonderful 80 degrees in the house in the summer!), almost all new efficient windows and did tons of (edible) landscaping.

But still, sales are way down. And the appraisers I am told simply count the sqft and multiply by some factor, and then look at the house down the block that sold for almost $100k less than mine - forget it was a tear out the guys remodel.'

If anyone has a lender they can recommend that will work with someone on one of these federal programs I hear so much about, please send them my way!

[huadpe]

All good things to think about.

The Refi option - the few lenders I've spoken to haven't been particularly helpful I think I need to do some more looking. I always get the sense they don't want to do anything but straight up fixed rates, and the rate is never as good as I read that it is. It may be that when we bought the house we did it at 95% LTV (5% down) and while the market didn't tank where I live, it hasn't been up. At all.

We've made some strong improvements to the place (new efficient GAS heat (old oil) all new appliances, and Central Air (that wasteful wonderful 80 degrees in the house in the summer!), almost all new efficient windows and did tons of (edible) landscaping.

But still, sales are way down. And the appraisers I am told simply count the sqft and multiply by some factor, and then look at the house down the block that sold for almost $100k less than mine - forget it was a tear out the guys remodel.'

If anyone has a lender they can recommend that will work with someone on one of these federal programs I hear so much about, please send them my way!

If you did 5% down, it's almost surely an FHA loan, so you should call your lender and ask about a streamline.  And a straight-up fixed rate is usually a good deal IMHO.  Especially cause your current rate isn't super low to compensate for the risk of rate hikes.  Only your current lender can do the streamline though.

[theSchmett]

huadpe thanks! I've been talking to my existing lender about a Refi but I only get rates and, well, what sounds like doubletalk.

I'll look into the streamline.

[Charlotte]

This might be a silly question, but is PMI tax deductible? I truly don't know and a quick google search seems to say "maybe". But I think it's an important consideration.

Just something to think about!

[Chiron]

Currently, yes: http://re-insider.com/2013/09/09/warn-your-clients-pmi-deductions-may-end-in-2014/