How To Lower Your Mortgage With Credit Card Balance Transfers

Credit cards and personal loans are typically very expensive and associated with financial disasters, but with financial prudency, control and wise banking, you can actually use credit cards to reduce your mortgage.This article shows you how.

Banks know two things:

  1. Credit card debt is a significant money spinner
  2. People are lazy and financialy disorganised

Consequently banks are quite keen to give special rates for balance transfers to new credit cards just to get your on their books. The idea is that you get a credit card with the new bank and transfer all the debt from your other credit cards to this card. You then get a special rate that encourages you to procrastenate with your payments and become comfortable about living in debt (lazy).

Fortunately, if you’re smart, this can really work to your advantage. Here how a smart person uses this facility:

  1. Get a new credit card with a special low interest rate on balance transfers (BNZ are currently offering 1% interest on balance transfers for one year)
  2. Transfer all your credit card debt to this card instead of paying it off
  3. Put the money that you would have used to pay the credit card off into a revolving credit mortgage (be careful not to pay off your mortgage during this year!)
  4. Keep using your old credit card and repeating steps 1 to 3 for the period you get the special rate on balance transfers
  5. Just before the end of the period, pay the credit card off using the money you have been saving in the revolving mortgage account

How does this help? This technique pays off in a number of ways. The most obvious way is that instead of paying 6% interest on money owed in the mortgage, you are just paying the 1% on the credit card (for the amount you spend on your credit card a year). You’re effectively getting 5% (6% – 1%) money back on everything you spend in a year!

The second way that it pays off is by reducing the money owed in your revolving credit mortgage. This helps because the less money owed in your mortgage, the higher the principle payments are and lower the interest payments are.

You don’t need to have a 100% revolving mortgage, you can have a large fixed mortgage and a small revolving or floating loan

Let’s look at this, if you owe $100,000 and your payments are $1,000 pw at 5% interest, your interest about $100 pw, so your at paying off $1,000 – $100, reducing your mortgage by $900 a week. If you only owe $50,000 in the same scenario, your interest is only about $50, meaning that you are paying off an extra $50 a week. This adds up a lot and can means a few years off your mortgage.

❗ Note: You can also use this method to build a deposit to buy a house.

**Note that this does not constitute as financial advice and anything you decide to do after reading this article is your decision and the author is not responsible**

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3 thoughts on “How To Lower Your Mortgage With Credit Card Balance Transfers

  1. Seems that Westpac are also offering 1% on balance transfers for a year (offer runs out 30th April). I guess you could hop from one to the other to avoid any fees this month?!
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  3. Hi everyone,

    There’s a gotcha that you have to watch out for when transfering your credit card balance ❗ (Don’t worry, this is still smart advice, you just have to be aware about this trap)

    I transfered my credit card balance to BNZ and the fine print said two interesting things:

    1. Payments pay off the balance that is at the lowest rate before paying off higher rates
    2. Any additional debt on the credit card will be charged at the normal rate of ~20%

    This is interesting because as you acrue debt from the 1 or 4% interest each month, this new debt will be charged at the full rate of ~20% and your monthly payments are paying off the cheap debt (the balance transfered at 1% or 4%). Consequently, as the year goes by, more and more of your credit card debt will be charged at ~20% and less at 1% / 4%.

    To mitigate this, you probably want to watch the charges each month and once they’re approaching a rate similar to your mortgage rate, pay off the credit card with your revolving / floating mortgage.

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