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Buy a house, get a free vacation?
It’s possible with a new mortgage offer from Chase, but it may not be the best financial move you can make.
The bank took a page from its premium rewards credit card playbook and is offering 100,000 Ultimate Rewards points to new mortgage customers. You have to have owned a Chase Sapphire, Sapphire Preferred or Sapphire Reserve credit card prior to May 7 to be eligible.
The offer, which will end Aug. 6, is thought to target the same millennials who jumped at the Chase Sapphire Reserve card, which launched in August 2016 with a 100,000-point sign-up bonus. The bonus has since been slashed to 50,000 points after you spend $4,000 during the first three months of card ownership.
Still, a fat points bonus is not enough to justify taking out a more expensive mortgage, cautions Greg McBride, CFA, Bankrate’s chief financial analyst. Before you buy, you should shop for the best mortgage rates. Then apply for the loan that has the lowest rate with the best terms. Don’t pick a mortgage just to get credit card points.
“On a $250,000 mortgage, a difference of just one-eighth of a percentage point — the difference between 4 percent and 4.125 percent — will cost an additional $6,500 in interest, dwarfing the value of the points,” McBride says. “And remember, most of the interest is paid in the early years so don’t rationalize by thinking you won’t keep the loan for 30 years.”
What those points are worth
The redemption value varies based on which card you own and how you use the rewards. For Sapphire Preferred customers, the points can be redeemed for travel through Chase’s website at a 25 percent increase in value, making those points worth $1,250. Sapphire Reserve customers get a 50 percent increase in value when redeeming for travel, making those points worth $1,500.
Either way, it’s likely to be enough for two round-trip airline tickets and a night or two in a hotel. That doesn’t mean it’s a good deal — unless Chase is the cheapest loan option. Otherwise, you’re still better off going with a mortgage that offers the best terms, rather than one that offers credit card rewards.
Mortgage incentives nothing new
Offering incentives to prospective mortgage holders is nothing new, even if the way Chase is presenting it is novel, says Michael Krumholz, a senior loan officer with U.S. Mortgage of Florida.
He says that any type of up-front bonus offered by a lender is likely to made up in the form of elevated interest rates or other fees.
“I’ve seen it with a lot of different lenders. They’ll give you a quarter-point lower in your interest rate if you open a bank account with them, but they’ll make up for it on the back end,” he says. “They’re using your money to lend to you.”
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