The average American mortgagor spends hundreds, if not thousands of dollars each month on a mortgage. Using a credit card to pay off a mortgage was an inconceivable and farfetched notion, until now. American Express has just ushered in a new concept that is bound to revolutionize the mortgage and credit card industries. It plans to give its cardholders who take out prime loans at select lenders, such as American Home Mortgage, the option of charging their mortgage payments on their credit cards, thus earning them reward points. American Express cardholders who utilize an American Express credit card to pay off their mortgage can expect to reap substantial annual cash rebates and earn a significant percentage back on future transactions.
This is a breakthrough and creative financing approach, considering that mortgage lending institutions typically would not accept credit cards. Furthermore, “card issuers would not encourage [the charging of mortgage payments] since this is in most cases a major red flag that the customer is in financial trouble,” explained Robert McKinley, chief executive and president of CardWeb.com.
Still, American Express (Fortune 500, Charts) is exercising prudence and not taking a gamble, since it is restricting its offer to cardholding clients that it pre-screens prior to enrollment and thereafter conducts periodic checks on prior to charging a mortgage payment.
To avail themselves of this new service, American Express customers will have to meet the criteria for a refinance prime loan or a prime loan for a new home purchase- which is usually extended to those with good credit – as compared to subprime loans whose target is home purchasers with poor credit.
In this new venture, American Express has thus far teamed-up with one company – American Home Mortgage. However, more partnerships with other lenders are in the planning stage and will soon be announced, indicated company spokeswoman Christine Elliott.
Mary Feder, a vice-president for American Home Mortgage, explained that eligible prime-loan mortgagors can choose from a number of adjustable-rate or fixed rate mortgage loans that do not surpass $1 million. Government loans, option ARMS, low- and no-documentation loans, and high loan-to-value mortgages are not covered under the program.
To determine an applicant’s eligibility for a prime loan, American Home Mortgage considers a number of factors, including 1) the borrower’s debt-to-income relationship, 2) the amount of the borrower’s down payment, 3) the borrower’s cash reserves, and 4) the borrower’s credit score.
At closing, eligible mortgagors will be required to pay $395 to the lending institution. Each month, there is an automatic mortgage payment charge. This enables borrowers to earn American Express reward points much faster, by virtue of the fact that mortgage payments usually comprise of a consumer’s largest monthly expense and ensures that the lender is paid timely.
American Express’ novel offer holds much promise for borrowers who have a history of paying their credit card bills and making their mortgage payments on time each month.
However, for consumers who face the prospect of insufficient and late payments on their card, the picture is not so rosy. Failure to pay a credit card bill on time subjects borrowers to late fees and can adversely impact their credit score, which in return can result in the imposition of a penalty interest rate.