July 19, 2008

Not Your Parents Credit Card Rewards Program: Pay Your Mortgage With Rewards

Once upon a time, credit card companies sought out ways to compete with one another in an extremely competitive industry – and rewards programs were born.  Most rewards programs offered .5 to 1% cash back from purchases made using the credit card, and were designed to encourage new consumers to sign up for the credit card over choosing a different company's card.  Today, rewards programs have come a long way from offering cents back on each purchase, and while cash back programs still exist – there are a number of rewards programs that really make a difference and benefit card holders who learn how to use the cards to their advantage.

A new form of credit card rewards program, and probably considered to be the most useful to homeowners, are cards that actually help you pay your mortgage.  What? Using credit cards can help you pay your mortgage?!  They can if you choose a card offering a mortgage rewards program that applies your earned rewards to your mortgage principle.

Even if you aren't a homeowner yet, you can benefit from mortgage credit card rewards with cards that allow you to build up your earned credits to be used on your future dream home purchase.  The Citi Home Rebate Platinum Select MasterCard's reward program offers 6% rebates on certain home expenses that can be applied to your current mortgage or saved for the purchase of a home later.

With most conventional mortgages, your monthly mortgage payment is almost entirely applied to interest.  If you make additional payments you can quickly reduce the principle amount owed on the loan.  Check an amortization schedule for the standard 30-year mortgage, and you'll see that the first few payments are almost all interest, and only a few dollars actually goes towards your principle.  Use an online amortization schedule with a calculator to see the difference sending additional payments will make to your overall loan – you'll be surprised!  Simply sending an extra payment in the amount of the interest you paid on the last payment can reduce your loan term by a full month.  Do this several times a year, and you will quickly reduce the amount you have to pay, and how long it takes you to pay your mortgage.

Most people don't have extra money to contribute to their mortgage, though.  That's where these mortgage credit card rewards programs come in.  If you use your credit card to pay for most of your expenses each month (and remember to pay it off in full when the statement comes to avoid interest and finance charges); you'll start earning rebates that will be sent to your mortgage company in the form of an additional principle payment.

Some cards offering mortgage rewards programs:

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Debbie Dragon is a writer for CreditorWeb.com where she writes about credit cards, rewards programs and general finance.