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2008-09-17 16:07:56

Credit Cards Can Be Homeowners' Best Friends

Typically when people think of credit cards, it's about how much trouble high interest rates and finance charges can get us into financially. Sure, credit cards give us a way to buy things when we don't have the cash available, but who really wants to pay three times the actual price tag for an item by making monthly payments? What you may not realize though, is that when the right credit card is used in the right way, it can actually help you pay off your existing mortgage, help you build up credits to pay for a future mortgage, or save money on home improvement projects.

Credit card companies are smart. They started offering rewards programs as a way to compete with one another for consumer business, and the programs just keep getting better. In today's tough economic times, an increasing number of credit card companies are offering rewards programs that make payments towards the principal of your mortgage, save money for a future mortgage, and/or help you save money on the expense of improving your home. 

Currently, Bank of America offers one of the most popular mortgage rewards programs with their Home Advantage Credit Card. Each time you use your Home Advantage Credit Card, you earn points. When you reach 5,000 points, they can be redeemed as a payment sent to your mortgage principal.

If you're still saving to buy a home, the Citi Home Rebate Platinum Select MasterCard might be a way to increase your savings.   This card offers up to 6% back when you use the card to pay for your utility bills – and the rewards are accumulated until you are ready to get a mortgage. 

How can such small rebates applied to mortgages make any difference at all on the amount you owe? Most mortgage amortization schedules are similar, and the first several years of payments are almost all interest. Only a small amount of each payment you make on a new mortgage goes towards the principal balance. Any additional payments made in the early years of a traditional mortgage will make a dent in the amount you owe. For example, if you were able to increase the principal portion of the payment each month to two times what you normally pay, you could pay off the mortgage in half the amount of time.

Rebates from your credit card rewards program pay down the principal of your mortgage and make it possible to save several months of payments and thousands of dollars in interest over the term of your home mortgage.

Other credit card rewards programs that benefit homeowners greatly are those that offer high percentages of cash back on home improvement purchases. In addition to the Bank of America Home Advantage card, and the Citi Home Rebate Platinum card; Discover offers a student card with 5% cash back on all home improvement purchases and the Discover mor ecard with 5% cash back on purchases made through home improvement retailers.

Debbie Dragon is a writer for where she writes about credit cards, rewards programs and finances.



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