Deposit using CC? Is this scenario possible?

[Electro]

Hi All,

First let me say I only use my credit card to buy online and automatically pay bills and I have never paid interest on a card ever. I always pay off a bill or purchase within days of making it and only use the card for convienience. I've seen the following method mentioned on here before but have not been able to find out for sure whether it really is possible.

Hypothetically speaking say I had a deposit for an IP but not 20% of purchase price. If I wanted to buy sooner rather than later and/or wanted to avoid LMI or even If I don't have a deposit at all but need one can the following be done:

1) Draw cash on an existing credit card to get to the 20% deposit or a suitable deposit. For arguments sake lets say $20k.

2) Get another credit card with a low rate or zero rate for balance transfers and transfer the full debt from the previous card to this new card.
Now 1 of 4 things can be done here:
a) Get a 0% balance transfer for 6 months and attempt to pay off debt within this time.
b) Get a 4.9% balance transfer for life and try to pay off debt asap but not let this restrict cash flow for other ventures. (i.e. still lower than a Home loan rate)
c) Get a 0% balance transfer for 6 months and pay of some of the debt during this period and then do another transfer to another card and continue to do it again and again until debt is paid off
d) After 6 months or 12 months or whatever time get a home loan top up and pay this off in full.

Important thing to note:
This new card will only be used to fund a deposit via balance transfer and nothing else to avoid high interest trap

3) Get home loan with this now healther deposit.

Is this legal, commom practice, will the banks allow this? What are the problems here....
- Balance transfers can only be done on purchases?
- Borrowing power reduced?
- Lenders will reject you with these practices?
- The card debt will severly restrict abilty to borrow?

Can someone please fill in the gaps or expose the holes in this plan.

 

[Cales405]

Hi All,

First let me say I only use my credit card to buy online and automatically pay bills and I have never paid interest on a card ever. I always pay off a bill or purchase within days of making it and only use the card for convienience. I've seen the following method mentioned on here before but have not been able to find out for sure whether it really is possible.

Hypothetically speaking say I had a deposit for an IP but not 20% of purchase price. If I wanted to buy sooner rather than later and/or wanted to avoid LMI or even If I don't have a deposit at all but need one can the following be done:

1) Draw cash on an existing credit card to get to the 20% deposit or a suitable deposit. For arguments sake lets say $20k.

2) Get another credit card with a low rate or zero rate for balance transfers and transfer the full debt from the previous card to this new card.
Now 1 of 4 things can be done here:
a) Get a 0% balance transfer for 6 months and attempt to pay off debt within this time.
b) Get a 4.9% balance transfer for life and try to pay off debt asap but not let this restrict cash flow for other ventures. (i.e. still lower than a Home loan rate)
c) Get a 0% balance transfer for 6 months and pay of some of the debt during this period and then do another transfer to another card and continue to do it again and again until debt is paid off
d) After 6 months or 12 months or whatever time get a home loan top up and pay this off in full.

Important thing to note:
This new card will only be used to fund a deposit via balance transfer and nothing else to avoid high interest trap

3) Get home loan with this now healther deposit.

Is this legal, commom practice, will the banks allow this? What are the problems here....
- Balance transfers can only be done on purchases?
- Borrowing power reduced?
- Lenders will reject you with these practices?
- The card debt will severly restrict abilty to borrow?

Can someone please fill in the gaps or expose the holes in this plan.

Before you try to get the new credit card, see if you get approved first. I have just applied for ANZ and St George credit cards to do a similar thing and was declined for my "profile". I was going to use the funds for renovations, not a purchase though

I did not understand this and when I rang both banks, they could not answer why as my income more than serviced the credit cards for the limit I was asking.

I have been in my job and residence for over 3 years, so had stability and I am on the highest tax bracket.

The only thing I could think of, is that I am commited to a bit of finance through mortgages for ips and if I lost my job, it would be a risk to them.

They are looking for new customers who will keep their credit card after the balance transfer period, so they can make money. How they determine this though, I do not know

 

[Propertunity]

Can someone please fill in the gaps or expose the holes in this plan.

Electro,

I think you'll find others that have used this strategy. Do a search on "balance transfer". To get you started read this thread:http://www.somersoft.com/forums/showthread.php?t=28009

The bottom line is that if you are going to answer the Qs on the loan appln. truthfully, then this cash advance will show in the liability column of your A & L.

If you can get 0% or 2.9% BT for 6 months - then yes - pay it off in that period.

If you can get 6.9% for the life of the BT, then you have the option to just make minimum payments. The payments will be principal & interest and will eventually get repaid. The interest is tax ded. anyway,

 

[Electro]

Thanks for the info guys.

I have also read that you can sign up for one of these cards and then draw out cash straight away (only once) from it but rather than being treated as a cash advance they will treat it as a balance transfer. So thereby bypassing the whole balance transfer process and still acheiving the same outcome.

Has anyone done this before? Do they really offer this option?

 

[Project1080]

Hi Electro,

I won't pic holes but point out some issues to consider which may bring the whole thing unstuck. I looked into using this method when the banks were offering ridiculously high short term rates of interest on term deposits just as rates were starting to come down.

Point 1. Timing. If your 6 mths is up and no bank is offering zero interest for CC rollovers at the time.
2. Interest rate if point 1 becomes a factor. God I hate CC interest.
3. Credit rating may be questioned if repeated often.
4. Cales405 has experienced this already. A bad customer from the bank's point of view. I.E. pays off balance on time every time. No benefit for bank. They're not greedy. They just want their $11.6B in fees. I'm in the wrong game. Selling my IPs 2morrow and I'm gonna buy a bank. But not Westpac. They just give their $$$ away.

I have forgotten to pay bal in full twice ever. Got letter asking to increase my credit limit. Pay off in full, never hear from bank. Funny about that.

Point of note Watch out for pre-approved CC applicatons the banks send out. Much to my horror, when I got last IP, I found out these register on your credit file. Luckily it was only one, but the bank still questioned it. Too bad if you happen to get a stack in the mail in a short period of time.

Project 1080

The project: 10 IPs in 80 mths.

 

[Nathan]

used cc before

just gotta run the numbers and see if ur making $$ by using it.

as for how. firstly to avoid paying cash advance fee, use cc for every bill u have and use ur cash u earn from job etc (living expenses $$) as deposit..

or get a starts low stays low cc where cash advance fee is no more then the normal fee.

or get a personal loan

or if u have a vehicle, tie a loan to it.

never done the last one.

worst case just sell ur car, and buy a clapper for few months till u save again.

 

[Jas]

Hi Electro,

Funnily enough, I did a varitaion on this. Back in the property boom, my then partner got pre-approved for a 20K cc, 6 months interest free. We took the money and bought a little 1 bedder. The plan was to do a quick facelift and sell. Instead we did a facelift and then rented it out. Had to pay back the 20K, but the yield was very nice and so was the captial growth.

Is this legal, commom practice, will the banks allow this? What are the problems here....
- Balance transfers can only be done on purchases?
- Borrowing power reduced?
- Lenders will reject you with these practices?
- The card debt will severly restrict abilty to borrow?

Can someone please fill in the gaps or expose the holes in this plan.

Yep, it's legal. Yep the banks will allow it. Not sure about balance transfers. Yep, your borrowing power will be reduced considerably (way more than you would think - check out one of those "how much can I borrow" calculators. Lender may or may not reject you becuase of it, it'll depend on how you are structureed elsewhere and how good your mortgage broker is. No the debt won't restuct your ability to borrow, the limit on the cc will.

Short term in a strong rising market - I'd say go for it. You are relying on both the ability to get rid of that debt quickly and capital gain in order to do so. The level of risk increases the longer you hold this arrangment and the slower the market.

Jas

 

[Electro]

Nate, Jas thanks for the other angles.

I've crunched the number further and will definately utilize this method in one way or another.

I will at least use it to elimate a car loan - I have $6k remaining on a car loan of which I am paying a minimum of $887 p/month. Using one of those borrowing calculators i worked out that even with a $6k card, by removing the $887 p/mth payments my DSR will improve thereby improving my borrowing power greatly. Mind you I will also save loan interest and would pay off the loan within the 0% period or even 4.9% would be better than the 11% personal loan Im on now.

Just one question do I have to actually transfer debt from another card or can I just apply for one of these cards and draw some cash out interest free for 6 months?

 

[Jas]

You could do either, draw the debt across or pull the cash out. I'd be conderned about pulling the cash out, some interest free cards don't include cash in the interest free component.

Jas

 

[eggnog]

instead of credit cards, if you have kids or mates in uni why not go for a student loan. Its basically free money with no interest attached and could probably be tweeked so you don't have to pay it back for a very very long time

 

[Electro]

I don't really need to do this but I just thought, like Nathan said, if I can use the strategy to make/save many then I should.

 

[Nathan]

Go to someone yopu know who has cash, mum dad bro sis kid cousin freind etc...

and get them to buy your debt with their savings (if its non deductable)

pay them the interest of say 7% (its more then banks pay) but less then your debt and isnt in CRA.

theres ways around borrowing capacity, should speak to a good MB to seek options.

 

[Electro]

I don't have a problem with my borrowing capacity. I can borrow more than what I need to atm. I just thought I can use this to either eliminate paying anymore interest on the car loan (even though its deductable) or LMI and end up saving some money.

Just some lateral thinking and exploring the use of such deals to my advantage!

 

[tobe]

Have you got a pay out figure on your car loan yet? It may well be diferent from the current balance owing. Most car loans are fixed rates, if it was fixed in the last year or so it might attract considerable break fees.

 

[Electro]

Have you got a pay out figure on your car loan yet? It may well be diferent from the current balance owing. Most car loans are fixed rates, if it was fixed in the last year or so it might attract considerable break fees.

I've just checked with my bank (CBA) and the break cost are about $500 or so. I've had the loan for well over a year but they said if it's payed off before 2 years these fees are payable. I was sure it was only if payed off within 1 year... will need to check contract.

Anyhow I crunched the numbers and worked out that even with the break there wont be any real $$ savings but by breaking the loan on paper my DSR will improve.

 

[Rolf Latham]

Hiya

Usually, you are better off paying some LMI rather than trying to weasle out of it and "saving" a few bucks.

What looks like a huge premium today will likley be a great help later on.

LMI isnt a problem, if its properly used and structured, indeed I consider it one of the greatest tools for starting investors or PPOR buyers.

ta
rolf

 

[Nathan]

Quote last part....

Especially if you capitalise @95% + LMI in the loan.

Hiya

Usually, you are better off paying some LMI rather than trying to weasle out of it and "saving" a few bucks.

What looks like a huge premium today will likley be a great help later on.

LMI isnt a problem, if its properly used and structured, indeed I consider it one of the greatest tools for starting investors or PPOR buyers.

ta
rolf

 

[buzzlightyear]

Just one question do I have to actually transfer debt from another card or can I just apply for one of these cards and draw some cash out interest free for 6 months?

Electro you will find that most credit cards have rules around the maximum of cash advance you can do at anytime plus an additional fee. $1000 is common for the maximum amount and ~2% for a fee, but obviously check with your card provider.

Makes withdrawing say $15000, a 2 week ordeal!

 

[Electro]

Electro you will find that most credit cards have rules around the maximum of cash advance you can do at anytime plus an additional fee. $1000 is common for the maximum amount and ~2% for a fee, but obviously check with your card provider.

Makes withdrawing say $15000, a 2 week ordeal!

Yeah I kinda realised that.

I guess what I could do is go around family and friends and pay for their bills/purchases/whatever on my card and take their cash instead. Then do a full balance transfer.

Even with this method getting to $15K would more trouble/effort than it may be worth .

 

[shiftyphil]

Get a Citibank card, they'll offer a 10% (for 12 months) balance transfer (not sure on their exact criteria, might have to put some money on the card and pay a bit of it off first).

The difference from any other balance transfer is that they'll let you take it as a cheque made out to yourself and do whatever you want with it. Amount is limited only by the credit limit they give you.

It'll save the fees and limitations of a normal cash advance, and then you can transfer it to a 0%/2.9% etc card a month later.