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Oblivion here I come.

By Melina Tomson

Real Estate Agent with Tomson Burnham, llc Licensed in the State of Oregon

August 16, 2008 02:11 PM

Everyone has their favorite sources to read. I like to read Business Week. The latest issue to hit my mailbox, left my jaw dropping.

Just Charge That Mortgage by Jessica Silver-Greenberg caught my eye.

Y'all know where I'm going with this right?

Apparently using homes as ATM's during the boom time was not good enough.

ChargeSmart,has a new online payment service where homeowners can continue to spend themselves silly. Yep, you can use your credit card to pay your home mortgage. 48 lenders are participating, and these are not small lenders. The big guys are there.

The cost, according to the article, is $4.95 plus 2.29% of the transaction. So if you have a $2,000 mortgage payment, you can have the privilege of paying it with your credit card and increase your payment by $50.75 a month.

That's $609 over the course of a year.

Now I have a credit card where I get points which I can use for a myriad of things. I have used them in the past to go to Hawaii and other places. I pay my card off every month though.

So if I flew once a year from Portland, OR to Portland, ME and went United it would cost me $420 to buy the ticket directly. If I charged a mortgage, I have the privilege of paying out $609 a year in fees in order to get the miles to purchase the ticket for "free." That's a $189 loss.

"With the reward points, cash back, and payment flexibility..., educated consumers are looking to charge everything they can," says ChargeSmart's Philip Mikal according to the article.

Now, call me crazy but if their target consumer is educated, don't you think they can calculate this out?

What this tells me is that the target consumer is not the educated consumer. So for homeowners that are struggling, they now have a new way to make their lives worse. Double pay interest. That's right for the easy convenience you can pay 6.375% on your home loan; then charge it for that nice additional fee; then if you fail to pay it off in time, that will only be an additional 13.4%.

Wow...sounds like a deal. Sign me up!

Oblivion, here I come.

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Erik Hitzelberger

RE/MAX Alliance - Louisville REALTOR-Luxury Homes - Louisville, KY

Louisville - Middletown Real Estate

This is quite possibly the most disgusting business plan that I have ever heard. It is beyond belief that the company cannot foresee the disasterous results that will occur as people get swamped by the double interest payments.

Aug 16, 2008 02:30 PM

Jon Zolsky, Daytona Beach, FL

Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL

Buy Daytona condos for heavenly good prices

This math will work against not those who do not understand the math and can't come up with the calculation like you did, but against those who are trapped, adn who would use it to buy time, and may easily end up in bigger trouble.

Aug 16, 2008 02:31 PM

Melina Tomson

Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR

Principal Broker/Owner, M.S.

Erik and Jon, I have a feeling that this is going to be bad. Desperate people with good credit will use it to buy themselves more time, and in the end make it worse for themselves.

Aug 17, 2008 04:17 AM

Anonymous

Blogger To Be Named Later

Oblivion, done that and been there. Came home with a wicked

<<Started this comment on my I-phone, now armed with laptop can complete...>>

Rash. The food is better in Denial.

I'm sorry -- did you question the financial sophistication of credit card users, Melina? Every marketing guru has caught onto this premise of "points" -- this network a prime example.

We have transcended beyond the expectation when we paid with cash. We received the product and services; the vendor received our cash. Now we all expect future, extended VALUE in the form of discounts, rewards, benefits.

Before we slapped down $100 in greenbacks and received $100 in product or service (assuming all is on the up-and-up). Now that same $100 on credit buys you $90; the supply chain reserves $10 in either value or service knowing you'll be back for it.

True there is a discount in bulk and volume. Under your scenario we're now paying $110 for $90 in value. What a great gig. Widen the spread and hope the consumer never submits the coupon or dies before spending the points.

Aug 17, 2008 11:01 AM

Marchel Peterson

Results Realty - Spring, TX

Spring TX Real Estate E-Pro

Melina, that makes no sense. I could see paying with a card if you were getting points and then were paying it off each month but why would you pay for a card if they are going to penalize you for using it. I wanted to pay my water bill by credit card to make it easy but they told me they would charge me 5% to do that and I told them forget it I would just pay it as soon as it came in so I didn't miss their date. Shoot the late fee is about the same.

Aug 18, 2008 03:53 PM

Andrew I'm glad you finished your thought. I was a little confused there for a while. My business card gets me miles so I can understand the whole charging and getting points. We do pay a premium for this convenience with higher prices for goods and services. It's a great gig up until everyone defaults on their credit cards and can't pay them anymore...

Marchel-I don't get the "educated" consumer that would pay those additional fees. What that means is there is a lot more trouble for the "educated" consumer is down the road.

Aug 18, 2008 04:35 PM

Doreen McPherson

Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ

Phoenix Arizona Real Estate ~

The credit card marketers know that most people live in the buy now pay later mode. They are willing to pay a 'fee' to have it now. When the house payment is due, the cash is gone, so use the card... What a mess we have.

Sep 14, 2008 11:17 AM

Oblivion here I come.

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