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Zero percent interest Discover credit card pays for high interest mortgage

Wed Jun 6, 2007 07:06AM | By Tony

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Zero interest Discover credit card pays for high interest mortgage - I thought which category should this go in, Mortgage or Personal Finance, only realizing it goes under Debt Relief, dummy. Before I get to the mortgage situation ...

I try to advise my clients on any financials matter I have a clue or two, besides the mortgage, and zero percent interest credit cards have become my favorite. I wrote lower your American Express Blue and Citi Simplicity in April of 2006. Myself, I currently use 7 zero percent interest credit cards - 3 with Chase, 3 with US Bank and one with Discover. I use them to pay off the land and the new SUV. So, here I put my money where my mouth is.

And so, couple of my new clients have those 80/10/10 mortgages, you know you put 10% down and take 2 loans, first one is the 80% at a good rate, and second is the 10% at a very high rate - it is normally done to get rid off Private Mortgage Insurance or PMI. These folks 10% second mortgages are at $28,000 and $23,000 at 9.5% interest rate, fixed for 30 years. The property values are not high enough, especially in today's market to refinance and consolidate the two loans into one lower interest mortgage. Besides in one case the first 80% are at 5.375% fixed 30 year mortgage rate, which is simply impossible even to come close to these days.

The solution I suggested was obvious to me - get a zero percent interest Discover credit card which allows you to transfer the balances at 0% for life. Discover gives you 7 or 8 months at zero percent with no strings attached. Afterwards, you must make 2 purchases per billing cycle to keep this 0% interest until you pay off the entire transferred balance. And the beauty of this offer is that the purchases can be minimal - $1, 50 cents, which is important, as Discover will charge interest to these purchases first. And the balance transfer fee is capped at under $50 in most offers I have seen. The initial credit line however is only $6,000, again in most cases I know of, and by the time Discover Card is willing to extend it, the 0% interest transfer time window is closed.

These two clients are married couples, so both couples have $12,000 between husband and wife, and their second mortgages are $16,000 and $11,000 now. They have to get rid off those in a hurry, as neither Countrywide nor Bank of America agreed to recalculate these loans, so the payments are still being made from the initial sums, which doesn't make any sense, and frankly defeats the whole idea. The next step is to get more zero percent interest credit cards or try getting home equity line of credit. Or pay cash. Some will say, it is way too much hassle. To me it is well worth it.

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