Mortgage Payments And Credit Cards - Two Examples Of Creative Thinking

American's are hooked on credit card rewards and while those that give consumers free airline miles are pretty old hat, lenders are constantly coming up with new ways to lure the plastic addicted to switch accounts.

Two of the newest variations involve mortgages and both are rather creative.

In May American Express announced a new program, the first in the nation, that allows cardholders to say "charge it" to their mortgage lender. In the past the holder of almost any card could take a cash advance to make a mortgage payment, but mortgage companies were not usually willing to pay the sizeable merchant fees required by the credit card companies to process loan payments directly. Under this new American Express program cardholders can even out any cash-flow problems involving mortgage payments or effectively shift the due date and can earn reward points for doing so.

It will, however, cost the card holder a hefty $395.00 one time fee to enroll in the program. However, a customer in one American Express program who has a monthly mortgage payment of $2,500 will recoup a cash reward of $385.00, just $10 less than that enrollment fee, in the first year. Rewards vary from card plan to card plan. Customers who do not pay off the total balance on their card each month will also pay 15 to 18 percent interest on carry-over balances. Only those homeowners with prime mortgages are eligible which means that American Express will not be in danger of assuming a portion of the subprime liabilities.

Initially two large lenders, IndyMac Bancorp and American Home Mortgage, signed on with the program. American Home Mortgage, however, filed bankruptcy last Friday in one of the more spectacular falls from grace in recent memory. Whether more lenders will be signing on with American Express in the current mortgage climate will be interesting to see.

Another lender has rolled out it own credit card related program. Ditech (a division of GMAC) is heavily promoting its "Real Life Plan" which combines up to three loans in one package; a prime first mortgage loan, a choice of two types of home equity loans, and one of two types of MasterCard credit cards. The loans are modular so a borrower can enroll for one, two, or all three of the choices.

The first mortgage loan is a fixed rate product that will be priced consistent with current "A" loan rates.

The second component can be either a standard home equity line of credit (HELOC) with a floating rate that starts at the prime rate plus 0 percent for those with excellent credit or a fixed rate home equity loan which is currently priced at 8 percent.

The third module is a traditional credit card; a Platinum MasterCard with a fixed rate of 7.9 percent APR or a Preferred MasterCard with a 13.99 percent APR. There is no annual fee and balance transfers and/or cash advances will be carried at a 0 percent rate for the first 12 months before they revert to the relevant fixed rate.

The interesting part of this program is that the card holder earns one point for every dollar in regular purchases charged to the card. But these points don't earn hotel room stays or airline miles (also known as six hours of hell sitting on the tarmac). At the end of any quarter in which the cardholder has earned 2,500 points $25.00 is automatically credited to the principal balance of his mortgage. There is no yearly limit on the points that can be earned so it is possible that a strategic or obsessive cardholder could channel enough purchases through his plastic - groceries, travel, clothing, even equipment or supply purchases for a home business - to knock four or five hundred dollars off the mortgage balance every year. This would provide a heck of a boost to the rate at which that loan amortizes.

We spoke with Frank Destra, managing director and senior vice president of national sales for Ditech about the program. He explained that the minimum FICO (credit) score for each of the three program modules is 620. Depending on the borrower's credit, Ditech will loan up to 100 percent loan to value with the two mortgages and this does not include the credit line available through the MasterCard.

Destra said that there has been considerable interest in the Real Life Plan and noted that "There has been a noticeable increase in demand for fixed rate products and we are responding by offering value added products where a fixed rate mortgage is the centerpiece. We see that our customers are responding enthusiastically."