Home Buying

How credit card rewards can benefit first-time home buyers

So you've taken the plunge and bought a home. Here's how to use credit cards (and their rewards) to help with those household expenses
Happy couple with cardboard boxes in new house at moving day.

You’re about to bite the bullet, the nervousness abounds. Can you do it? Can you really make it happen? Most importantly: Can you afford it? Being a first-time home buyer can bring so much joy and exultation but along with all these good feelings comes a lot of potential stress and anxiety. One of the big stress points is cash flow and affordability and for many first-time home buyers, these worries have them wondering if they should put off certain purchases until some time in the future. That’s where credit card rewards can come in handy. 

The great news is there are strategies that first-time home buyers can use to help defray the cost of buying that first home. One of the best strategies is to use a credit card with a reward system. Wait. Back-up. It’s to use a credit card with a reward system responsibly. Like any consumer, home buyers must be wary of falling prey to many of the potential downfalls of having a credit card and at a stressful time, the last thing you want is to rack up high-interest debt you can’t pay off. Here are some tips for using credit card rewards as a first-time home buyer.

Financial responsibility is key

The key to having a credit card, and to maximizing its rewards, is being able to pay off your balance every month. Why? Because the interest that will be charged is going to cost way more than the rewards themselves. Way more. This is especially true if you’re paying off only the minimum payment amount authorized by the card issuer. Do this for too long and that $100 pair shoes can end up costing you closer to $300.

My rule of thumb is that you don’t want to carry a balance for longer than three months on rewards cards. Ever. If you do, you need to get yourself a low-interest card (that typically doesn’t have rewards) or consolidate your balance(s) with a lower interest loan or line of credit.

Remember, you have to be financially responsible with your credit cards just as you would with any other credit options. Don’t spend more than you can afford just to have some luxuries or to get those credit card rewards. Spend within your budget — you’ll still get rewards if you do so. Keep doing this and you’ll watch the rewards grow. 

Which card is right for you?

What are the best credit card rewards for a first-time home buyer? The answer is the same for new homeowners as it is for anyone else in Canada: it’s the credit card reward program that’s best for you.

If being a first-time home buyer means you’ll be struggling with cash flow, look at cash-back credit cards. If you’re OK on cash flow but can’t save enough for a vacation, then travel rewards may the best option. The key is to take the time to find the card or reward system that works best for you. Don’t just jump on the first program that you come across. Research what makes the most sense for your spending and lifestyle habits.

If you fall into the cash-strapped category, the best bet is to get a no-fee credit card with rewards so you aren’t paying more money than you have to with a credit card. Yes, the rewards may not grow as fast as they would with an annual fee card, but that’s the trade-off at the early stage. Once you’re on your feet and finances are stabilizing, perhaps you can move to a fee-based card with bigger rewards and more insurance benefits.

Now onto the actual rewards cards!

Cash Back Credit Cards

Cash Back reward credit cards have been around since the 1980s and simply reward you with cash back on your eligible credit card spending. (We say eligible as you don’t earn rewards on cash advances, fees, interest, etc.) The premise is simple: the credit card issuer will reward you by giving a percentage of your spending back to you.

The return depends on the card you get but it typically ranges from 0.5% to 2% on most cards with some offering ‘bonus multipliers’ for spending in select categories. For example, there are cards that offer 4% back on groceries, 3% on restaurants and so on. For no annual fee cards, the return rarely goes above 1.5% but that’s still better than nothing. To put that into context, if you were to spend $10,000 on your card in one year, you’d get $150 back. What you’ll also want to research in this category is how and when you get your cash back return. Most cards award it only once per year as a credit back to your card while a select few cards will award the cashback monthly and even offer to send you a cheque if you don’t want the credit to your account.

Travel Reward Credit Cards

Travel Rewards credit cards have also been around since the 1980s and were the mainstay of the industry until recently when the banks made their cash back cards more attractive. The main difference between travel rewards cards and cash back cards is that you typically can only redeem the points or miles earned from your spending on travel.

One may ask why you would then choose a travel rewards credit card over a cash back card. There are several reasons. The first is return. Many travel rewards credit cards can potentially provide a return greater than 2% and in some cases, even well over 10% on your spending. It all depends on the program and how you use the points or miles. The second reason is that you have better access to the rewards. Most travel rewards credit cards have points that can be redeemed at any time. You don’t have to wait until the end of the year as you do for a cashback card.

The great news is that credit card users can get the best of both worlds with the latest trend of card issuers offering both cashback and travel (and other redemption) options with their proprietary reward programs. Again, the returns are better for travel but they provide the option to redeem for cash back at any time.

Two great examples of this are American Express Membership Rewards and Scotia Rewards. Both have great travel rewards cards offering up to 5% and 4% returns respectively when you redeem for travel, but if you choose to go for cash, you get up to 3.5% and 3.2% respectively (and you can redeem at any time for either).

Household rewards

There are options beyond cash back and travel rewards. For example, you have retail reward programs like HBC Rewards, Canadian Tire’s Triangle and programs that fall into many of the reward program categories like AIR MILES, PC Optimum or More Rewards. Those can be useful for different types of household spending. Say you have kids enrolled in hockey, a program like Triangle could help you with some of the equipment purchases at places like Sport Chek and Canadian Tire, or you can use programs like AIR MILES, PC Optimum or More Rewards to help lower your grocery expenses. In reality, the options with reward programs are almost endless.

Using credit cards wisely

two friends going on a luxury shopping spree

Once settled into your new home, you’ll want to look at which bills you can pay with your credit card. Most utilities don’t allow you to pay by credit card although there are options with companies like Plastiq where you pay them with your credit card and they pay your utility bill for you. It comes with a fee of around 2.5% so you’d have to do the math to see if the rewards you’re getting are worth more than the fee. There are times they run promotions when they lower the fee (even to 0%) at which point it makes a lot of sense to use those services.

There are however lots of other monthly household services that you can pay with your credit card, like bills for cell phones, home phones, internet, television and so on. You can and definitely want to put all those charges on your rewards earning credit card.

Now, what about other expenses, such as planning a renovation for your new home? Perhaps you accounted for that cost by taking out a larger mortgage or a line of credit. Try to pay for as many of those renovation costs on your reward credit card, and then pay off the balance with the lower-interest “loan” you negotiated when you bought the home (either as a Home Equity Line of Credit or as an extra mortgage amount to cover the renovation costs). You can even pay your card in advance and carry a negative balance if you want to make sure you don’t forget to pay off those larger purchases.

As a first time home buyer, you should be keeping a close track of your finances and if you exercise caution, there’s no reason why you shouldn’t use credit card rewards to help with the initial costs of becoming a homeowner. The key is to be responsible, don’t overspend, pay the balance on the card off each month and strategize to get the most reward from every possible purchase.

Patrick Sojka
Patrick Sojka

Patrick Sojka is the founder of RewardsCanada.ca, Canada’s leading website for loyalty rewards.
Launched in 2001, RewardsCanada.ca is regularly featured in the Canadian media and is considered to be Canada’s premier frequent flyer and travel rewards resource. The website features daily updates on news, articles, program information and bonus offers for over 75 travel reward programs. The company also operates the Rewards Canada Weekly Roundup podcast where listeners stay on top of Deals of the Week, industry mover and shakers as well as learning about tip and tricks to maximize earning potential.