Home Owners Gain Issuer Attention

  For many Americans, the family home represents the single biggest purchase they will ever make and the engine of most of the wealth they will accumulate in their lifetimes. It follows that card issuers see an opportunity in tying their products to the family home.
  Financial institutions have found at least two ways of linking cards to home mortgages and home equity lines of credit: Some offer credit cards with rewards that pay down the mortgage each time the cardholder makes a purchase, while others provide cards that draw funds from a second mortgage.
  Credit cards that pay down the principal of the home mortgage constitute a niche market but inspire loyalty, says Megan Bramlette, associate at Auriemma Consulting Group Inc., a Westbury, N.Y-based consultancy.
  The cards work somewhat like cash-back products. But instead of providing the cardholder with an occasional check, the cards apply about 1% of the purchase amount to the principal of the cardholder's home mortgage.
  "People like the simplicity of tying the rewards directly to the mortgage," says Betsy Weinberger, a spokesperson at Charlotte, N.C.-based Bank of America. "Customer research shows the card is highly desired."
  Community banks began offering cards that pay down loans as early as the mid-1980s, and the phenomenon has spread to large institutions in the last couple of years, according to Fran Dale, president of Entandem Inc., a Sterling, Va.-based card marketing and consulting company.
  Banks view the cards as an opportunity to cement a relationship with a customer, says Bramlette. Many institutions are working hard to capture all of their customers' banking business, not just a single card or account. The credit card tied to a home mortgage links two banking functions.
  "It's a way to make the relationship a little stickier," Bramlette says.
  One version of the card, Citibank's Citi Home Rebate Platinum Select MasterCard, applies 1% of all eligible purchases to the principal of the cardholder's home mortgage, plus 6% applied for 12 months on spending for Internet connections, telecom services, cable television, satellite television, other pay TV and radio, and utilities.
  The card carries no annual fee, and Citibank imposes no cap on the rebates a customer accumulates.
  GMAC Mortgage introduced the GMAC Mortgage Equity Rewards MasterCard, a no-annual-fee Platinum Plus credit card, in 2004. Cardholders earn one point for every dollar in purchases charged to the card. The card carries no annual limit on points.
  GMAC offers an example of what the card can do. Based on a $150,000 mortgage with a 30-year term and a 6.5% fixed annual percentage rate, quarterly equity rewards payments of $50, accrued from spending of $5,000, would save a cardholder $16,975 and would reduce the term of the mortgage by 17 months.
  In August, Bank of America announced the Ownership Rewards Credit Card, which also pays an equity-loan dividend of one point per dollar spent and carries no limit.
  Other banks also are offering debit and credit cards that allow access to home equity lines of credit. Baltimore-based Provident Bank, for example, allows access to home equity through a MasterCard debit card. Huntington Bancshares in Columbus, Ohio, offers a Gold MasterCard that taps into home equity lines of credit.
  Whatever card a consumer chooses, using it could bring an unanticipated bonus, says James Accomando, president of Accomando Consulting Inc. in Fairfield, Conn.
  "If you select the card, your whole mindset is focused on paying down the mortgage," Accomando says. "You might make some additional payments on your own. That's why it's a great product."
  While some consumers are using credit cards to pay down their mortgages, others are using their home equity as a source of financing.
  Cards are issued that draw upon home equity in the Chase Premier Home Equity Line of Credit program, says Tom Kelly, a JPMorgan Chase & Co. spokesperson. The product, called the Chase Equiline Platinum Visa Card, is a method to access home equity lines of credit.
  "It's a card instead of a pad of checks," he says. "It's a matter of how people can get at the line of credit we've given them."
  LOWER RATES
  The card offers an interest rate that is lower than those typically charged for credit cards, Kelly says. "It has the convenience of plastic but the interest rates of a home-equity loan," he says.
  With the home equity line of credit, Chase charges the borrower interest only on the portion of the line he has used, say $100 of a possible $50,000. A home-equity loan would require interest payments on the full amount from the time the loan is granted, says Kelly.
  "So a home equity line is like a credit card line-it's just secured by your home," Kelly notes.
  Bank of America offers the Equity Maximizer Visa, another card that draws upon a home equity line of credit.
  The home-equity cards offer some advantages to consumers who use them properly, including lower interest rates than they may receive from typical credit cards and an income tax deduction if the loans are tied to the borrower's primary residence, Accomando says.
  Still, the cards can become lethal in the wrong hands, Accomando says. Consumers who consider credit card debt a short-term loan may lull themselves into viewing a card that draws down home equity as a long-term loan, he says.
  Most consumers who take out a line of credit use it, says Brian Riley, a senior analyst in Bank Cards Practice for TowerGroup, a Needham, Mass.-based research and advisory firm owned by MasterCard Worldwide. He notes that only about 10% of the lines of credit taken out are never used.
  "It's something you should be cautious about using," Riley says of lines of home-equity credit. "The access is easy, and you can become generous."
  Credit card rewards tied to home mortgages can help to pay down the loans faster. But credit card programs tied to home loans used improperly can cause consumers to find themselves in deeper debt.
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