Should I refinance home loan for air miles?

Maybe it’s just the cold time of year, but a recent column about a woman who cashed in her air miles for flight to the Canary Islands and a much needed getaway in the sun seems to have tweaked the emotional fascination for air miles and getaways.

Stan and Joyce Savaard, a Canadian couple in their 60s, wrote to describe how much they enjoyed their Hawaiian getaway, the result of more than 80,000 air miles accumulated when they sold their family home of 20 years and bought another through the same real estate brokerage.

Friends from Colorado wrote to say they refinanced their mortgage, thereby gaining more air miles for a long-awaited trip to Paris.

We all seem to know someone who is dead-set on gleaning every last bonus air mile out of credit cards, designated hotels, telephone calling plans or stock trades. Many consumer services now come with “no strings attached” air miles, compliments of corporate marketing budgets that have been increased in an attempt to corral a greater piece of a specific competitive market.

However, remember that somebody has to pay for supposed freebies, so it’s always best to do comparison shopping. Sometimes you can negotiate out of the “free gift,” which could prove more beneficial to you down the road.

For example, there are many lenders, including Washington Mutual, Wachovia, CitiMortgage, Wells Fargo and Chase, who will give you 1,000-1,300 air miles for each $10,000 of your home purchase loan amount. Programs vary, depending upon the lender and air carrier.

For round numbers, let’s suppose you purchased a $240,000 home with a $50,000 down payment, leaving a loan balance of $190,000. That would enable you to 24,700 air miles (19 x 1,300). Keep in mind that according to the United Air Lines Web site, consumers can purchase miles and 25,000 miles would cost you $697.

What you’ll want to consider is if the interest rate on the loan would be any different if you declined the air miles. For example, let’s say you could get that $190,000 on a 30-year, fixed-rate mortgage for 6.1 percent with air miles, yet 6 percent without the freebie miles. The savings over the life of the loan from the 0.1 difference in interest rate would be $4,406, much greater than the actual purchase price of the air miles.

True, few people stay in their home for the entire term of the initial loan. They usually move or refinance – at least once. So, the questions to ask up front are:

*Is there a rate adjustment if I decline the air miles?

*Is there a prepayment penalty if I accept the miles?

*Can I keep the miles regardless of if/when I refinance?

The miles for loans idea is not new. About eight years ago, Countrywide Funding and Great Western Bank (since acquired by Washington Mutual), had watched the huge success of free mileage linked with credit cards and began offering mortgage customers free air miles when they purchased or refinanced home loans. It was an attractive winter marketing wrinkle, as customers dreamed of the sunshine in St. Somewhere.

Some lenders will tell you that the free air miles are indeed, free, and come with any program within their system. Others will say that there is no loan adjustment for declining the miles and that the expense of the air miles truly is contained in the bank’s national advertising budget. However, it never hurts to ask.

Real estate brokerages may be even more willing to negotiate a lower commission schedule if the air miles did not enter into the picture. Air fares for a round-trip flight between Vancouver, B.C., and Honolulu start at $497 for the academic spring break period of April 2-11. Perhaps our Canadian couple could have saved a little money by exploring that option.

“We had thought about it and knew we might have done better by working the deal a different way,” Stan Savaard said. “But we had been promising ourselves to make a better effort at taking time away. We have always been the kind of people that talk about it but never get around to doing it.

“The air miles help push us to do it. The vacation we took simply meant more than the money we would have saved handling it another way.”

Tom Kelly, former real estate editor for The Seattle Times, is a syndicated columnist and talk show host. Send questions and comments to news@tomkelly.com.