(Toronto) Canadians looking for a little extra help with their mortgage payments may be surprised to learn that there’s an option available to them: loyalty points.
Some banks, including Royal Bank of Canada and CIBC, allow customers to use credit card points to pay off their mortgage.
Of course, a considerable number of points would be required to cover the entirety of a mortgage, but experts say this option is likely to be more attractive to borrowers at a time when interest rates have risen sharply and owners have to make higher payments.
“People are trying to get creative to make ends meet,” observes Natasha Macmillan, commercial director of day-to-day banking at Ratehub.ca, a mortgage, banking and insurance comparison website.
She predicts that people will take a closer look at how they can use their points to pay all sorts of bills. Travel rewards, she believes, could be abandoned as people mostly seek cash back opportunities to cover day-to-day expenses.
Macmillan doesn’t often hear about customers using loyalty points for a mortgage, though she suspects that’s because many banks don’t offer the service. Even when offered, she adds, a high number of points is usually required to help pay off a mortgage.
Royal Bank allows customers using Avion cards to redeem points for travel and gift cards, as well as credit card, housekeeping or shopping bills. Customers with such cards can also earn points to help repay Royal loans or mortgages, contribute to registered and non-registered savings plans, and fund wire transfers, direct investments and donations from charity.
Approximately 120 Avion points can get $1 off a Royal Bank mortgage.
The average value of a new mortgage was $320,298 in the first quarter of the year, according to data from Canada Mortgage and Housing Corporation (CMHC). This means that a customer with a mortgage of this size would need over 38 million points to cover the rest of their loan.
CIBC offers users of its Aventura credit cards the ability to redeem points for mortgage payments.
Redemptions start at 12,000 points for a $100 payment or contribution to an existing CIBC financial product like a mortgage, spokeswoman Katarina Milicevic explains in an email.
This means that a customer with a new CMHC average-rated mortgage would also need about 38 million points to cover the rest of their loan.
However, Milicevic notes that more users redeem points for travel rewards than mortgages.
The most popular use of points among Avion users is also for travel rewards, followed by gift cards, observes Niranjan Vivekanandan, head of loyalty and merchant solutions at Royal Bank.
A quarter of customers use their points on financial services products, which he says include mortgage payments or credit card bills – an option the Royal has offered for about a decade.
“Especially in this high inflation environment, being able to use (points) as an alternative to traditional currency is something really important and gives flexibility to consumers,” Vivekanandan argues.
The flexibility also came in handy when the COVID-19 pandemic hit.
“We saw people who previously would have stored these points for travel, but they were using them for a whole host of different reasons because they had so many,” Vivekanandan recalls.
For people considering using their points and thinking about using them to help with their mortgage payment, Macmillan recommends first looking at which banks they use and which lender they turned to for a mortgage. Loyalty programs tend to only allow points to be used on a mortgage held with their bank and it’s common for people to get a mortgage from a different lender, she points out.
For people who use the same bank for their mortgage, she then recommends calculating how many points would need to be redeemed for various rewards.
Once the math is done, it will be possible to determine which rewards offer the most value for the least amount of money spent. Often, buying mortgages isn’t the most cost-effective option, observes Macmillan.
“When you look at the trade-in model, sometimes you get better value when you trade for a trip, for example, than when you trade for an invoice,” she notes.
“So users might start doing that math and (find that using points on a mortgage) might not be the most relevant option for them. »