Mortage interest vs. Credit Card Interest

[sogwap]

Texas.

Does anyone know what the difference would be on a 5 year mortgage loan for $30,000 at 9.45% Interest as opposed to $30,000 on a credit card with a 2% Interest rate. IN other words if I wanted to pay the mortgage due to the interest rate and just put it on a credit card (for now) is there a big difference in the way interest is compounded, etc.? Are there advantages either way? 2% is low but I know nothing about credit card vs. mortgage and how there done. The loan is only a 5 year with a huge balloon payment. By the time it's done, I will have paid $45,000 for a $30,000 parcel of land.

 

[Country Living]

....a 5 year mortgage loan for $30,000 at 9.45% Interest.

Monthly Payment: ~$630 for a total of ~$37,760 for the five years. Mortgage interest is deductible if you file long form. I'm not sure where you got the $45K number unless there was a down payment. The bank is listed as lienholder. Add another $125 to the monthly payment and you can pay it off in 4 years.

$30,000 for 5 years on a credit card with a 2% Interest rate.

Monthly Payment ~$525 for a total of ~$31,500 for the five years. Credit card interest is not deductible. Are you confident the 2% is not a teaser rate in effect for a very limited amount of time? If it's not, and you change the payback period to 4 years, the payment will be approximately $650. Add about $200 more a month to that number and you can knock out the loan in about 36 months. There is no lienholder if you go this way.

It's usually easier to get a $30,000 mortgage than a $30,000 line on a credit card.

Note: the tilde "~" means "approximately".

 

[efflandt]

The difference is that the OP is probably trying to find a better route than 9.45% interest only for 5 years with $30,000 balloon (which would add up to over $14,000 interest).

I would be skeptical about a 2% CC interest rate for unlimited time. The best offer I got for unlimited time was 2.99% several years ago, but has gone up since then. I do still get 0% to 0.9% offers, but that is for a limited time (plus usually 3% balance transfer fee, unless they have a dollar limit). But you cannot count on if or when those will repeat.

 

[Ozark_Sophist]

You have to be proactive to keep low rates. Mrs OS gets on phone every couple months working the credit card company to lower rates.

 

[sogwap]

Monthly Payment: ~$630 for a total of ~$37,760 for the five years. Mortgage interest is deductible if you file long form. I'm not sure where you got the $45K number unless there was a down payment. The bank is listed as lienholder. Add another $125 to the monthly payment and you can pay it off in 4 years.



Monthly Payment ~$525 for a total of ~$31,500 for the five years. Credit card interest is not deductible. Are you confident the 2% is not a teaser rate in effect for a very limited amount of time? If it's not, and you change the payback period to 4 years, the payment will be approximately $650. Add about $200 more a month to that number and you can knock out the loan in about 36 months. There is no lienholder if you go this way.

It's usually easier to get a $30,000 mortgage than a $30,000 line on a credit card.

Note: the tilde "~" means "approximately".

THANKS so much for all that info. I am gathering that I am better off with the credit card because there will be NO lienholder. But would you mind taking a look at this and confirm that for me. I am so lost in all of this...

My numbers were rounded.

MY disclosure statement says the following:

Annual Percentage Rate (The cost of my credit as a yearly rate is =10.339%
Finance Charge (The dollar amount the credit will cost me =$13,525.60
Amount Financed (The amount of credit provided to me or on my behalf =$28,287.45
Total of Payments (The amount I will have paid after I have made all payments as scheduled =$41 813.05
Total Sale Price (The total cost of my purchase on credit, including my downpayment of $3,500.00

Payment Schedule: My payment schedule will be 59 monthly payments of $304.27 each, beginning July 23, 2008; and one payment of $23,861.12 on June 23, 2013

I know this is a BAD deal, but I had no choice because I could not produce enough proof of income and had to go with what I had (long story).

I don't understand the interest rate, as on the Real Estate Lien Note is says 9.45%.

It's not that I'm as stupid as I sound, or maybe I am..

Anyway, the credit card is now offereing 3.99% which is a bit higher than the last offer, which I didn't take because I needed to find things out first, but the last offer was 2.99% with a 3% fee NO MAXIMUM. That could have run me nearly $800, which I thought would still be worth it in the long run. NOW the offer is the 3.99%, still has a 3% fee attached but with a maximum of $199. The card offerering is empty and my credit line is $30,000. The one thing I did have was EXCELLENT credit. Didn't do me enough good in this stupid mortgage loan but.

Oh not concerned with deductibles at tax time.

The low interest rate IS for the LIFE OF THE Balance!!!

 

[sogwap]

You have to be proactive to keep low rates. Mrs OS gets on phone every couple months working the credit card company to lower rates.

Yea, I know I did it for 15 years when I was married. Very on top of it. Thanks.

 

[sogwap]

The difference is that the OP is probably trying to find a better route than 9.45% interest only for 5 years with $30,000 balloon (which would add up to over $14,000 interest).

I would be skeptical about a 2% CC interest rate for unlimited time. The best offer I got for unlimited time was 2.99% several years ago, but has gone up since then. I do still get 0% to 0.9% offers, but that is for a limited time (plus usually 3% balance transfer fee, unless they have a dollar limit). But you cannot count on if or when those will repeat.

Exactly what I am trying to do.

I was skeptical about the low rate. But I have excellent credit which always warrants a low rate for the LIFE of the balance. Excellent credit but nothing else, not a great thing, but oh well at least I have that. There is a transfer fee, but I would still rather pay that which is 3% with a maximum of $199 because the interest rate on the Mortgage loan is so HIGH.

 

[Country Living]

I like keeping things simple, so let's look at this a different way. Instead of splitting between the real estate loan and a credit card loan (for the balloon payment), pay enough on the real estate loan to have the whole thing paid off in 60 months. There's nothing to keep you from adding additional payments to principle. Don't get so caught up in difference between the interest percents right now - let's look at the bigger picture of getting this paid off as quickly as possible.

Principle: $28,287.45
Interest: 10.339%
Period: 60 months
Payment: ~$606

If paying off in 4 years, the payment would be ~$720

Make sure you separate the scheduled payment from the additional principle when you make your payment each month. I always included a note with each payment:
Monthly payment $$
Additional payment to principle $$
Total payment this month. $$

I checked every month to make sure it was posted the way I instructed.

Run this by your bank.

I don't like interest only loans. Is there any particular reason you had to go interest only with a balloon payment? You can still make additional payments to principle.

PM me with how much money you have to work with consistently each month on this loan.

 

[Country Living]

What is the limit on your credit card? As much as I prefer keeping things together when practical, I'm backtracking now - if you could finance as much as the bank would allow on a fixed rate loan and you could put the rest on your credit card. I want those two numbers.

I'm assuming this is land only because the interest rate is so high. Are you also working with your credit union to see what they could do for you? Credit unions seem to have more flexibility, especially if you already have a relationship with them.

One other thing you have to do is have your homeowner's liability extended to this property. It's a very small cost and you want to protect yourself financially.

 

[sogwap]

What is the limit on your credit card? As much as I prefer keeping things together when practical, I'm backtracking now - if you could finance as much as the bank would allow on a fixed rate loan and you could put the rest on your credit card. I want those two numbers.

I'm assuming this is land only because the interest rate is so high. Are you also working with your credit union to see what they could do for you? Credit unions seem to have more flexibility, especially if you already have a relationship with them.

One other thing you have to do is have your homeowner's liability extended to this property. It's a very small cost and you want to protect yourself financially.

My credit card limit is 30k. My goal is to NOT have the bank own my property. I was mostly curious as to how the interest accrues. Whether or not there is much of a difference. Since there is such a big difference in the interest rate, I thought I should first see if it's done differently. I did recall that the 3% fee would probably not be a part of the low interest rate and would be paid with the higher rate, but there is a maximum that the fee can go and that is $199. The 30k balance would be the low interest, but $200 would be at a higher interest rate and since I would be paying the lower off first, since that's how cc's work, the $199 would constantly increase the balance.

Anyway, YES it's land. I don't have a credit union. And I DO have to extend my homeowner's liability to the property. It didn't even occur to me.

Thanks.

 

[sogwap]

My credit card limit is 30k. My goal is to NOT have the bank own my property. I was mostly curious as to how the interest accrues. Whether or not there is much of a difference. Since there is such a big difference in the interest rate, I thought I should first see if it's done differently. I did recall that the 3% fee would probably not be a part of the low interest rate and would be paid with the higher rate, but there is a maximum that the fee can go and that is $199. The 30k balance would be the low interest, but $200 would be at a higher interest rate and since I would be paying the lower off first, since that's how cc's work, the $199 would constantly increase the balance.

Anyway, YES it's land. I don't have a credit union. And I DO have to extend my homeowner's liability to the property. It didn't even occur to me.

Thanks.

But Still with the way the loan is set up, I think the Credit card at that low of a rate might be a better option.

 

[Country Living]

1. Is the price of the land $30,000?
2. What is more important to you - the interest rate on the loan or not having a lien on the property?
3. Is this rural property?
4. Do you qualify to belong to a credit union?

 

[sogwap]

1. Is the price of the land $30,000?
2. What is more important to you - the interest rate on the loan or not having a lien on the property?
3. Is this rural property?
4. Do you qualify to belong to a credit union?

The price of the land was 31,500. I put a down payment of 3,500, with closing costs, etc. the financed amount is now $28,290.

I would say "not having a lien on the property", but the interest rate doesn't bless me.

I would say "rural" yes.

I don't think I am qualified to belong to a credit union, but I will check into it.....

 

[Country Living]

The price of the land was 31,500. I put a down payment of 3,500, with closing costs, etc. the financed amount is now $28,290.

Then this can all go on your credit card. Will you be overextending yourself on your consumer credit if you do this? It may trigger some alarms with your creditors if your score takes a significant hit. See if your credit card people can run a scenario on the impact on your score if this goes on your card.

Out of curiousity - is owner financing available? When is closing? You may have a time constraint.

I would say "not having a lien on the property", but the interest rate doesn't bless me.

If you get a better rate having a lien holder, then you could simply put a plan together to pay off the note as quickly as possible and have your lien released.

I would say "rural" yes.

Rural means you're out in the boonies around farm and ranch land. How many acres? Are you going to build and eventually live there?

If the land is in another county, and you're going to relocate there eventually, you may want to contact a community bank (or a credit union) in that county to see what they can do for you. It never hurts to have the dialog if you have the time. It's also a good time to start establishing financial relationships if you're going to live there.

I don't think I am qualified to belong to a credit union, but I will check into it.....

The reason I keep asking if you do (or can) belong to a Credit Union is I have found them to be easy to work with, give you lots of one-on-one attention, and may have some creative solutions depending on your financial situation.

 

[Country Living]

1. In what county is this property?
2. How far away are you from it?
3. Are you going to build and live on it or is it for speculation?
4. How many acres?