Consumers earn points to pay off mortgages

Program lets cardholders reduce home loans every time they say `charge it'

September 12, 2004|By Tamara El-Khoury | Tamara El-Khoury,SUN STAFF

Credit card companies and the retail industry have teamed up to enable consumers to earn reward points to pay off car loans, college tuition and, now, home mortgages.

Several financial-management and mortgage companies are offering their customers opportunities to earn points redeemable toward paying off their mortgages when they use credit cards.

Companies including Citigroup, GMAC Mortgage, Merrill Lynch and MBNA Corp. have announced programs this year aimed at letting consumers earn rebates toward paying off their mortgage principal when they use a particular credit card.

GMAC Mortgage announced a partnership with credit card giant MBNA Corp. this year giving customers a point for every dollar they spend with their credit cards. When the cardholder earns 2,500 points, $25 is credited to his mortgage principal with the company.

"We're always looking for ways to help consumers use credits to their advantage," said Janis Tarter, a spokeswoman for Citigroup, which announced a mortgage-rebate program this year with its credit card division.

The trend is new, but the temptation to spend more than usual to earn points is an old one.

Such programs raise red flags for financial planners like Michael Kitces, director for financial planning at Pinnacle Advisory Group in Columbia.

"Don't go and increase your spending just because you have a rewards program. There is nothing wrong with shifting the spending that you do," Kitces said. "If you're spending the money already, by all means, pick a card with a rewards program that you'd use the most."

GMAC says that based on a $150,000 mortgage with a 30-year term and a 6.5 percent fixed rate, a participant in its program who spends $5,000 a month on his credit card will save $16,975 and reduce the term of his mortgage by 17 months.

Those savings do not reflect interest payments a homeowner makes on a credit card balance.

At least 40 percent of credit cards have some sort of rewards program, said Michael Auriemma, president of Auriemma Consulting Group, a New York based company that specializes in credit cards.

"Anything you want, you can find a credit card to help you earn points," Auriemma said.

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