Money transfer card to overpay?

ZoPig2016

Hi everyone,

I have been reading up on this forum for ages, decided today to finally join!

I have had an idea and wondered if people could give me their thoughts.

To get me started on my mortgage free wannabe journey I have already worked out that my plan should be as follows:
- Fix ends July 2018
- aim to get LTV down to 65% or better to remortgage for a better rate by that date
- current rate 4.68%
- current borrowing 151000
- current value 200000

I have been overpaying by 50 a month but I can put away a bit more, up to 300. I can overpay 16000 a year without penalty.

My question is, would it work to borrow some money on a money transfer credit card (0% interest for a fixed period, paying an initial fee only), use the cash to overpay the mortgage in a lump sum straight away and then pay back the credit card gradually rather than the mortgage?

As far as I can see the pros are:
- big saving on interest over the life of the mortgage
- saving on the interest in the short term too, provided that the fee percentage is less than the mortgage
- helps me get to my LTV goal more effectively because of the reduced interest
- no difference in terms of the monthly payment amount

The only con I can think of is that if circumstances changed and I could no longer make the overpayment/ repayment, and the debt wasn't cleared in time before the 0% ends, then I would lose out big time with a debt with a big interest amount.

Have I missed any cons? Any thoughts on this?

To me this looks like I can pay a fee in the hundreds now and save myself thousands over the life of the mortgage? It seems too good to be true.

edinburgher

No issues other than those you have identified. You can usually use a balance transfer at the end of the promotional period to keep the debt rolling over, too.

Plenty of people doing this or similar. A cheaper way to go would be to get 0% cards with long introductory offers and use a 'slow stooze' (i.e. use the card for household expenses etc. paying the savings off the mortgage). Works well if you have high regular outgoings, not so easy if you're a low spender.

James_Tyroll

My question is, would it work to borrow some money on a money transfer credit card (0% interest for a fixed period, paying an initial fee only), use the cash to overpay the mortgage in a lump sum straight away and then pay back the credit card gradually rather than the mortgage?

Surely, this is where people get into trouble. If you can afford to pay off £x per month just pay that off on the mortgage. If it means you won't quite get to the TLV you want by July 2018 then budget to save a bit more or remortgage later (or next time).

Sounds like you are setting yourself up for dropping onto an interest bearing credit card after a period, which would be much higher % than the mortgage, therefore negating much of the savings.

You have to balance the benefit of saving a bit on the rate, with the risk of taking out another form of debt. Are you that keen to be mortgage free a few years earlier that you want another credit card?

edinburgher

Sounds like you are setting yourself up for dropping onto an interest bearing credit card after a period, which would be much higher % than the mortgage, therefore negating much of the savings.

As I've said, no reason why OP couldn't BT the debt onto another card for a small fee if the cost of the fee was less than the interest saved. There are some very sophisticated investors out there who routinely do this to free up cash for other opportunities. Even on the MFW board, I've heard of people who had £75k interest free money stoozed in offset mortgages etc...

ZoPig2016

Having done some maths with my mortgage spreadsheet the difference between paying in a lump sum and monthly over the timescales involved is about £450. So the real question is, for this sum, is the risk of things going wrong worth it?

Personally I think the answer is, no.

katep23

edinburgher wrote: »

As I've said, no reason why OP couldn't BT the debt onto another card for a small fee if the cost of the fee was less than the interest saved. There are some very sophisticated investors out there who routinely do this to free up cash for other opportunities. Even on the MFW board, I've heard of people who had £75k interest free money stoozed in offset mortgages etc...

Exactly this, I've got £47K offset at 0% with fees of around 1.99% (over 2 to 3 years) compared to interest rate of 4.44% PA. As it's offset, the money is there to pay it back at any time.

I'm paying minimum payments (£500 per month) and will see if there is any opportunity to BT the outstanding when the time comes.

A year before remortgaging I will repay the balance and let my credit file recover.

If you don't have the opportunity to offset, use the money to rotate through various current accounts to get the best rates of interest and then repay before the 0% comes to an end.