Do the math before using credit card loyalty points toward mortgages

Canadians looking for a little extra help on mortgage payments may be surprised to learn about one possibility: loyalty points.

Some banks, including Royal Bank of Canada and Canadian Imperial Bank of Commerce, allow customers to use credit card points toward paying down their mortgage.

While it would take a massive number of points to cover off an entire mortgage, experts say the option is likely more attractive to borrowers at a time when interest rates have risen sharply and homeowners are on the hook for higher payments.

“People are trying to get creative in how to make ends meet,” said Natasha Macmillan, business director of everyday banking at Ratehub.ca, a mortgage, banking and insurance comparison website.

She foresees people looking more closely at how they can use their points to offset all kinds of bills. Travel rewards, she said, could fall by the wayside as people seek cashback opportunities to support everyday expenses.

Macmillan said she doesn’t often hear from clients who use loyalty points toward a mortgage, though she suspects that’s because many banks don’t offer the service. Even where it exists, she said, a high number of points are usually required to pay of a mortgage.

RBC allows customers using Avion cards to redeem points for travel and gift cards, along with credit card, household or shopping bills. Customers with such cards can also collect points to help pay down RBC loans or mortgages, add to registered and non-registered savings plans and fund e-transfers, direct investments and charitable donations.

Roughly 120 Avion points earn $1 off an RBC mortgage.

The average value of a new mortgage loan was $320,298 in the first quarter of the year, according to Canada Mortgage and Housing Corp. (CMHC) data. That means a customer with a mortgage of that size would need more than 38 million points to cover off the remainder of their loan.

CIBC offers users of its Aventura credit cards the ability to redeem points on 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 said in an email.

That means a customer holding a new mortgage loan valued at CMHC’s average would also need about 38 million points to cover off the remainder of their loan.

However, Milicevic said more users redeem points for travel rewards than mortgages.

The most popular use of points among Avion users is also travel rewards followed by gift cards, said Niranjan Vivekanandan, RBC’s head of loyalty and merchant solutions.

A quarter of customers use their points on financial service products, which he said include mortgage payments or credit card bills — an option RBC has had available for roughly a decade.

“Especially in this environment of high inflation, being able to use [points] as an alternative to traditional currency is something that’s really important and gives consumers flexibility,” Vivekanandan said.

The flexibility was also handy when the Covid-19 pandemic hit.

“We saw folks who previously would have stockpiled those points for travel, but they were using them for a multitude of different reasons because they had so many that they couldn’t deploy,” Vivekanandan said.

If you’re weighing whether to use your points and considering the mortgage payment route, Macmillan said to first look at what banks you use and the lender you turned to for a mortgage. Loyalty programs tend to only let you use your points on a mortgage held with their bank and it’s common for people to get a mortgage from a different lender, she said.

If you use the same bank you have a mortgage with, she then recommends calculating how many points you need to redeem for various rewards.

Once you’ve done the math, you’ll know which rewards offer the most value for the fewest dollars spent. Often redeeming on mortgages isn’t the most cost-efficient option, Macmillan said.

“When you look at the redemption model, at times, you get better value when redeeming for travel, for example, than you would for paying for a bill,” she said.

“So users might actually start to do that math and [realize using points on a mortgage] might not actually make a ton of sense for them.”