When rates for 30-year mortgages reached their lowest level in 31 years recently, it re-ignited a refinancing boom. But despite the upbeat and booming business in this area, most mortgage makers are shaking their heads because, while millions of frequent flyers have affinity credit cards and millions of them own homes that surely would have been refinanced over the past three years, only tens of thousands of them have actually taken advantage of the opportunity to get competitive mortgage rates and miles to burn.
How can that be? Especially when you consider that members of these programs are the kinds of upscale consumers that can be served in both good and bad economic times.
“The rates aren’t jacked up at all. But people are not making the mental connection between, I can get a mortgage and I get miles and there are a ton of miles to get,” says Tom Handler of US Bank Home Mortgage, Northwest WorldPerks’ mortgage partner. “It’s one mile per hundred dollars of loan. So a $200,000 loan is 20,000 miles. The whole program is a failure. So who’s missing the boat?”
It was June 1999 when the American AAdvantage program broke the mortgage partner barrier in a big way and announced partnerships with five lender mortgage leaders — California Federal Bank, Downey Savings and Loan Association, Great Western Bank, HomeSide lending and PHH Mortgage Services Corp. In this original program, members earned one mile for every dollar of interest they paid on their mortgage, and earned those miles month after month — often earning hundreds of thousands of bonus miles over the course of several years.
But shortly thereafter, United Mileage Plus introduced its mortgage partners and the rules changed. No longer were miles to be rewarded on the interest paid, rather, research showed that members of these programs wanted instant gratification and, thus, miles were awarded up front — 1,000 bonus miles for every $10,000 of mortgage. Far less rewarding over time than the interest rewards, but nonetheless more attractive to potential home buyers.
The original mortgage partners of the American AAdvantage program are long gone, but many more mortgage companies have joined in and now most major frequent traveler programs have at least one partnership with a mortgage or home finance partner. And this is not just restricted to airline and hotel programs. Diners Club Club Rewards has a relationship with Citibank’s CitiMortgage that allows members to redeem points toward closing costs or a 1/4% reduction in loan origination points. And MilePoint will allow frequent flyers of most major programs to redeem their miles for mortgage closing cost discounts. For example, a member can receive a $500 closing cost reduction in exchange for 25,000 miles with Chase Manhattan Mortgage.
Members were a bit slow to catch on at the beginning, as financial ‘experts’ broadcast that there were no free lunches in this area and members were actually paying more to cover the cost of the miles. For those who took the time to actually do their research that advice proved to be false. Lenders use frequent flyer miles as incentives because it makes them stand out from the crowd. It looks like you’re getting something free and you are, since the marketing costs of these miles are built into the overall cost of customer acquisition. Lenders who aren’t giving you anything will certainly try and say that you’ll never get anything for nothing.
Today, many of these same partners also offer additional miles if you buy your home through one of their participating real estate brokers. With GMAC Better Homes and Gardens, for instance, you get about one mile for every four dollars you spend on buying a home, or make selling one. If you buy and sell a home with them, you get miles for both transactions. The miles are paid for from agency and agent commissions.
What percentage of frequent flyers have discovered the riches of miles from mortgages? In a survey of readers last December, we found that only 11 percent of you have ever earned miles from refinancing your home mortgage. Of those that did earn miles for their mortgage, 75 percent intentionally chose a lender because it partnered with a frequent flyer program. And a few frequent flyers have become very savvy at the miles game — almost three percent of those who earned miles from mortgages were multiple-use customers, having bought a new home or refinanced more than once for the miles.
The scheme has proven highly successful for those lenders who linked up early. LendingTree, which might be considered the leading player among these programs, has partnerships with five airlines (they recently added United Mileage Plus), one hotel program and one credit card program (American Express Membership Rewards is as a real estate partner only) — and they are still plying for additional partnerships. Since March 2001, LendingTree has awarded over 50 million bonus miles — that represents over a quarter billion dollars of home financing.
“We launched our affinity program with airline partners a couple of years ago,” says Tom Reddin, president and chief operating officer of LendingTree.com. “The way the basic concept works is, say you have a $300,000 home and you want to sell it and buy another one for the same value and you want to get it financed. A $300,000 home would be 217,500 miles if you use one of our realtors to sell your home, one of our realtors to buy your home and a Lending Tree lender to finance your home.”
Airlines and bankers that have been able to form these happy partnerships insist that marriage is bliss. The airlines can boost transaction levels by providing a valuable service to current frequent flyer clients and by building their program memberships, and mortgage lenders can remunerate their clients with a service to beat all value-added services. Frequent flyer miles can even attract home buyers who don’t often fly, since the rewards can be large enough to finance a family trip.
Interested lenders better be ready to jump in quickly though, because the door to this juicy market is likely to close soon as airlines will be unlikely to move beyond partnering with more than just a few networks.
Lenders have also been gaining some access to contacts other than airlines to attract home buyers with frequent flyer points. For instance, Hilton Hotels now has a program with Countrywide that offers 2,500 points per $10,000 borrowed. Outside the frequent flyer arena, however, such programs have been much less successful.
The Rules of the Game
So how do frequent flyers such as yourself learn to use your frequent flyer program as a legitimate vehicle for mortgage shopping? First and foremost, it’s important to remember that, no matter how good the offer is, the miles are not completely “free.” The lenders and real estate agencies offering these miles have to pay the airlines for them. That means that at some point you could be paying for them too. Although the charges won’t be specified, you could pay for the “free” miles in the form of fees or as a higher interest rate if you’re not careful. While we tend to focus on interest rates when we are shopping for a home loan, there are other costs as well, such as points, loan application fees and processing fees. Ask the lender what the total cost of the loan will be, and compare it to a similar loan from a lender that doesn’t offer miles.
Can you find a real estate broker who doesn’t offer miles but who is willing to negotiate on the commission? Real estate agents like to tell you that the commission is carved in stone. It’s not.
Also, when choosing a lender, ask your friends and relatives for references. Thoroughly check out the company by making sure they’ve had no complaints registered against them with the Better Business Bureau and Attorney General’s office. Ask the lender for references that you can check. A quality service provider should be happy to hand over names and telephone numbers.
Let’s remember that while your first instinct is to focus on the interest rate — there’s more to the relation than 6.25%. If you’ve ever had rates change before closing or unexpected fees tacked on you’ve experienced this firsthand. While the companies that are affiliated with frequent flyer programs are considered to be among the best nationally, that doesn’t guarantee you’ll hire the best lender, real estate broker, or get the best value.
If frequent flier miles are that important to you (and we know they are … you’re reading Inside Flyer aren’t you), by all means, call the local office nearest you or access the Internet Web site of your frequent flyer program of choice for a competing bid on your refinancing loan. Make sure the 30-year fixed-rate loan that North American, Countrywide, Lending Tree, US Bank or eLoan are offering carries the same interest rate and closing costs as other 30-year loans offered by other lenders in your area.
The Victory Lap
Frequent flyer programs are as popular a marketing tool as ever, with the airlines becoming ever more competitive in finding ways to offer miles to their members. Home sales have been going through the roof, making the move into the mortgage market a no-brainer for both airlines and bankers alike. And, as more Americans seek mortgages and refinancings, competition among lenders for new clients is a growing race.
It’s foolish to pay an additional $1,000 just to get frequent flier miles. Luckily, you probably won’t have to. In our research, we checked with a variety of lenders across the country and found that 93% of the time we were able to get the lowest interest rate available and get the miles — with no extra fees and no additional hidden costs. In fact, most of the time we only revealed the mileage connection later in the conversation.
So, the next time you have a need to refinance or take out a new home loan, get it in to your head that frequent flyer programs are worth miles in every thing you do in life — or at least for the next 30 years.