Is it possible to use a 0% APR loan to accelerate amortization?

Question

Say the following:

1 I live in a duplex and rent out the other side

2 I take out a 0% interest loan/credit card and pay the principle (ahead of schedule)

3 I "pause the mortgage" (ie "Mortgage Forbearance")

4 I use money from my tenant to pay off the 0% rate loan credit card while my mortgage is "paused"

5 Once the credit card is paid, continue as normal?

Is this something people have done to get equity up front? Is it even possible

Austin Bright · Answer

@Neil Narayan I guess my point in doing this is because I don't have a ton of cash on hand to fund my first deal. So, in order to make the operation more efficient (ie get out of the PMI) and also have enough equity to look at a HELOC/other financing options, I would like to speed up amortization allowing me to get out of the FHA as soon as possible and reduce my overall debt load and monthly payment.

Just researching loans, I can find ones that are 0% APR for 21-24 Months. If I borrowed 30K and could put 1667ish towards it per month and pay it back in 18 months which would give me 3-6 months of vacancy. Of the 1667, 750 would be coming from the tenant (1300 rent minus property management, Taxes, and insurance).

I would pay the $900. I wouldn't be living for free during this time, but my current apartment rent is $1440. Again this is also assuming an 18 month payback on a 24 month loan. So I've built in a 25% vacancy factor, which is probably overestimating.

With a 2 month vacancy (8%), the required payment 1363. My payment would be 550ish/month for instant equity vs ~500 in interest per month if I let amortization run its course. Yes, its $50 more expensive, but I'd get the equity upfront.

I haven't yet done extensive research on it yet, but I'd imagine it could make good financial sense with the right numbers and checks in place.

Austin Bright · Answer

Thanks!

Neil Narayan · Answer

@Austin Bright

Before you execute on your plan, make sure to tie off with the Lender as you will need to show an actual hardship to get teh Forbearance. Also there is risk of tenant not paying, impromptu vacancy, etc. Run the math but this seems like a high risk plan for not much gain.