June 25, 2008, 6:00 am

How Credit Cards Help You Pay Off Your Mortgage

by: The Financial Blogger    Category: Credit Rating & Credit Bureau,Pay off your Debts
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Here is a guest post from Debbie Dragon. She is a writer for CreditorWeb.com where she writes about
credit cards, rewards programs and finances.

When most people think of credit cards, they cringe at the thought of paying high interest rates and finance charges. Who really wants to pay two or three times the cost of an item by making monthly payments? If the right credit card is used correctly, though, it can actually help you pay off your existing mortgage – or build up credits to help you pay for your future mortgage.

 



While not yet as common as the frequent flier rewards programs or the cash back rewards programs, there are an increasing number of credit card companies offering rewards in the form of rebates that are applied to the principal of your mortgage, and helps reduce what you owe. If you don’t have a mortgage yet, there are a handful of other cards that allow you to build up your credits by using the card, and then use them towards the purchase of a home.

Bank of America’s Home Advantage Credit Card offers one of the leading mortgage rewards programs. Using the credit card earns you points; and every 5,000 credit card reward points can be redeemed as a payment towards your mortgage principal.

For people who have not yet purchased a home, you might look into the Citi Home Rebate Platinum Select MasterCard. This card offers a high percentage cash back, in the form of rebates applied to a mortgage, of up to 6% of certain categories of purchases. For example, when you use the Citi Home Rebate Platinum Select MasterCard to pay for utility costs, 6% of those purchases made with the card will be credited to a statement on your account and later used to pay down a mortgage. Once you buy a home, you can continue to apply your rebates to the principal of the mortgage and pay it off faster.

The majority of mortgage amortization schedules look similar in that the first several years of monthly payments tend to be almost all interest payments, with only a small amount of the payment going towards the principal balance of the loan. If you were able to increase the principal payment each month, by double, you could pay off the mortgage in half the amount of time. This is why it’s possible that a small additional payment made on a mortgage regularly will work to reduce the amount you owe significantly.

When your credit card rewards program contributes your earned rebates to the principal of your mortgage, those rebates can actually save several months of payments and several thousand dollars in interest over the course of your mortgage. The Bank of America’s Home Advantage Card website indicates that paying $50 every three months to your mortgage through a credit card rebate program (or on your own) would save you four months on your loan term and over $3,300 in interest.

In order to make any credit card rewards program effective, you would want to use that card to make most of your monthly purchases and as your primary form of payment, while paying your balance off in full at the end of each month. When you pay the card off in full, you avoid interest and finance fees, but still earn the highest level of rewards possible to be applied to your mortgage and help you pay it off faster.

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Comments

For people struggling with debt, using credit cards for rewards can send the wrong message. Sure, the rewards are great – but only if you pay off the balance each month. If not, get some credit counseling, or come up with a debt reduction plan first. Then once you’re out of debt, you can enjoy the rewards!

i totally agree- the last paragraph of my article says just that! You definitely need to pay your credit card bill in full every month in order to take advantage of ANY rewards program effectively. It takes discipline but is well worth it in the end.

by: Bryan Barker | October 29th, 2008 (9:11 am)

I like this Idea, I already have a BOA line of credit but no card from them like you talked about.