Credit Card Rewards Pay Down Mortgage Principal

[Valerie S. Johnson]

By Valerie S. Johnson

It started with frequent flyer miles. We were so excited about getting something for nothing. You just used your credit card and got free tickets. Of course, the programs quickly became victims of their own success. The airlines limited the number of seats on a flight that could be occupied by a frequent flyer and imposed other restrictions.

Rewards based on usage of credit cards expanded to points for shopping, dining, and travel. Discover pioneered the cash back concept. Many customers, particularly those with good credit, may shop for credit cards based on the reward programs.

Major lenders such as Citigroup, Bank of America, GMAC, Wells Fargo, and Countrywide Financial now offer the newest type of reward program: card holders can pay down their mortgage principal. For example, for every $100 spent, a homeowner can reduce $1 of principal. The Wells Fargo website provides an example of a 30-year mortgage for $200,000 at an interest rate of 6.25%. If the homeowner charged $2,500 per month to the card, they would save over $24,000 in principal and interest over the life of the loan, which would be shortened by 19 months.

If only we could earn rewards for NOT using credit cards … other than not accumulating debt.

[Joan.of.the.Arch]

Nyah. The mortage paydown is only worth 1% of charges. Even with the reduced rebates that rewards cards tend to give in the last few months, you should be able to find a card worth 2%. Put that down on the mortagage if yiou wish.