Tuesday, July 25, 2017 00:40

CIBC AeroMortgage – Flyer Beware

aeromortgage

For many families, earning Miles is an obvious way to accumulate without having to spend anything over and above what  you already are. Your Air Miles card or AeroPlan Visa are great tools to earn point and get swag from making day to day purchases.

These products have also made their way in to the mortgage market. Would you like the idea of a mortgage that gives you Aeroplan points for every dollar of interest you pay?

At first glance this may seem like a great idea. You have to pay for your mortgage anyways, why not accumulate reward points while doing so.

The Aeromortgage, offered by CIBC is one such product that adds incentive to paying interest on your mortgage.

The website states, “Start turning your mortgage payments into travel and lifestyle rewards by earning one Aeroplan® Mile* for every dollar of mortgage interest paid, plus get a one-time bonus of 15,000 Aeroplan Miles.”

Check out CIBC’s AeroMortgage

Essentially, every dollar you pay in interest on your mortgage is 1 mile in your Aero Plan account. Equivalently, 1 Mile is the equivalent of 1 cent in REAL money.

If you have ever read my blog before you will have read that I have trouble sometimes understanding why people show such loyalty to their banks. After all, your Bank has 1 main priority – to make lots of money. Guess how they make money? By charging you more than they should be.

Anyways, lets take a look at the ‘AeroMortgage’ so you can see what I think of it.

First off, according to their website the interest rate for the product STARTS at 5.39% which is the current posted rate for the 5 year fixed rate. By comparison a good 5 year fixed rate that you can get at a Broker today is 3.59%. So, while you will get Aeroplan points for paying your mortgage, you are paying more real money to get them.

Lets say you had a $300,000 mortgage amortized over 25 years at a good 5 year fixed rate today of 3.69%

Over the course of your term you would pay $51,416 in interest.

Now if you went for the Points mortgage with the higher interest rate you would pay $75,842 for the same mortgage.

This is a difference of $24,496! Note that this $24,496 is cold hard cash that you earned that you are giving your bank.

Take a minute to think of what your family could do with an extra $24,496 over the next 5 years. Its significant isn’t it!

To make matters worse, I went to the Aeroplan site to see what this additional $24,496 (or 24,496 points) could be redeemed for.

2 – $100 Delta Hotels Gift cards for 25,000 Miles (Real Value – $200)

Samsung Smart 3D Blu Ray Player – 24.500 Miles (Retails for $139 at BestBuy)

The next few items unfortunately are outside of your range for the additional $24,496 in interest you are paying.

Wii console – 33,000 miles

Apple 16gb Ipod Nano – 26,000 Miles.

Hopefully you get the idea.

Points programs are great for credit cards where you get points for dollars spent. And you can pay the balance before interest accrues, but for a mortgage, be very careful and know what you are getting in to before you sign up!

I can think of so many things I would do with the $25,000 I would save in interest rather than getting an Ipod Nano . If you are trying to save for a vacation start by reducing your mortgage debt and saving interest there. Use the money saved for a short term investment and you will be way better off than collecting the point through this program.

If you are interested in incentive programs do the math first. Does it add up? If you have to pay thousands of dollars in interest for a couple hundred dollars in redeemable points then look elsewhere to find ways to add value to your money.

John Shearer
Mortgage Broker