Finessing a job relocation package for profit

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TL;DR

While the ideas in this article are discussed in the context of a job relocation package, most of them apply equally well to relocation in general.

The biggest opportunity for finessing a relocation package for profit is in the free mortgage. If you’re able to profitably make mortgage payments by credit card, then you can essentially create a manufactured spending opportunity by mortgaging an excess amount and then paying it down via a rapid series of credit card payments. In our most recent relocation, we were able to use this technique to net about $1,800 cash back and 102,000 IHG points.

However, please be aware that this is not a trivial hack to execute and there are plenty of ways in which the best laid plan could be thwarted. Below I outline some of the considerations for creating a successful plan of attack.

Introduction

Job relocation packages typically include reimbursement for various kinds of moving and mortgage-related expenses that can, with some planning, be leveraged for a nice profit via credit card rewards. Such expenses include house hunting expenses, home inspection and radon testing costs, closing costs for a mortgage on a new home, temporary living expenses, vehicle registration and license, job search assistance for a spouse, etc. Relocation packages are quite varied, so if there are other leverageable expenses I’ve missed, please chime in with a comment below.

Opening new credit cards around the time of a new mortgage

It’s generally not a good idea to open new credit cards in the months leading up to getting a mortgage. We knew this, but did it anyway during our most recent relocation. It worked out okay, but the card that was opened between the time of the mortgage pre-approval and final approval was noticed by our bank’s mortgage underwriting department and could have been an issue. So that means you’ll likely be using whatever pre-existing reward cards you have or, perhaps, waiting to open new cards until after your mortgage has been approved. A card opened after being approved for a new mortgage can still be used for re-lo expenses such as temporary living in a hotel or even paying rent through a service like Plastiq.com. Perhaps more importantly, if your burn down plan for the excess mortgage hack stretches out over several months, you can potentially make use of cards that are opened after your mortgage is approved.

Note that you may want to try out our tool for finding cards with good sign-up bonuses or ongoing rewards to make the most of your relocation expenses. Once you have an idea of your anticipated spending for expenses like those outlined below, you can monthlyize (like annualize, but by month) that spending and plug it into the tool.

Earning credit cards rewards for reimbursable relocation expenses

For planning purposes, here are some of the relocation expenses covered by our most recent relocation package and approximately how much credit card spending they can generate:

  • Home Inspection and Radon Testing:  In my experience a home inspection and radon inspection together will cost about $500, but varies by locale and, possibly, the square footage of the home you’re purchasing. In our most recent relocation, we ended up being reimbursed for two home inspections and two radon tests because we withdrew our offer on the first home we found due to issues uncovered by the home inspection.
  • Spouse Career Assistance:  For spousal job search assistance via an outplacement contractor, our recent relocation package offered reimbursement for approved expenses up to $1,000.  This included things like resume preparation and career counseling. We didn’t take advantage of this and I don’t know the going rates for these kinds of services.
  • Temporary Living, House Hunting, Etc.:  In our recent re-lo, these expenses were covered by a lump sum provision of several thousand dollars. We felt pretty lucky that we only had to stay in a hotel for a week while we were between homes. Fortunately, we had a fantastic Marriott Towneplace Suites redemption available for just 7,500 points per night during that week. So we effectively traded points for cash at a good rate. During the house hunting process we also stayed in hotels on a few occasions. Those stays were also covered by points. We even lucked out and got in on an IHG “Points Break” redemption for just 5,000 points per night.

Maximizing credit card rewards from the free mortgage

The greatest opportunity to finesse the profit earned from a re-lo is by making the most of a free mortgage. The main requirement for executing this hack is to get a mortgage from a lender that allows you to make mortgage payments by credit card and charges you less in fees for credit card payments than the value of the rewards you’ll earn from those credit card payments. Assuming you can do that, the basic idea is to obtain a mortgage for an amount that’s larger than you need and then use the equity from the home you just sold (or savings) to quickly pay down this excess portion of your mortgage with payments using your credit card(s). During our most recent move we did this using a few different cards and we ended up netting about $1,800 in cash back and 102,000 IHG points, even after the additional interest incurred.

Please be aware that doing this successfully will likely require some research and careful planning. Ideally, the lender you use would be one with which you have previous experience making mortgage payments by credit card. That way you truly know all the ins and outs of what they’ll allow — the maximum amount for a mortgage payment, frequency of payments, etc.

Items to research

Some of the details you’ll need to research before attempting this hack include:

  1. What is the fee structure for making mortgage payments by credit card?
  2. What are the hard limits on the amount and frequency with which you’ll be able to make credit card payments?  Is it possible that the amount of your regular mortgage payment will preclude you from the credit card payment option entirely, even for principle-only payments, because your regular mortgage payment exceeds their limit?  (I have seen this before. It becomes more of a risk when you’re taking out a large “excess mortgage”.)
  3. If your plan is to pay off your mortgage quickly, then be sure to investigate rates for adjustable-rate mortgages in addition to fixed-rate mortgages. An ARM can minimize the amount of interest you end up paying to execute this scheme.
  4. Don’t forget that many credit cards will let you make mid-cycle payments. So you can potentially pay down your excess mortgage amount at an increased velocity by running more than your credit limit through a card each statement cycle.  If your mortgage lender allows you to do a high volume of mortgage payments through credit cards each month, you should investigate the details of mid-cycle payments for each of the cards you’re planning to use.
  5. If you’re planning to use mid-cycle credit card payments, you may also want to figure out how long it takes each payment to be processed and actually clear with the credit card company.  You can determine this in advance of executing this scheme by testing some mid-cycle payments on the cards you plan to use. Some card issuers will immediately make more credit available after you make an immediate payment (as opposed to a future-scheduled payment). Other issuers take longer for such payments to post to your account. This can obviously affect the pace of your planned excess mortgage burn down.
  6. For the card(s) you’re planning to use, try to determine if mortgage payments may be processed as a cash advance (which usually incurs steep fees) instead of as a regular purchase.  As a safeguard, you can talk to the card issuer and request that the cash advance limit be set below the mortgage payment amount you’ll be doing. Personally, as a general rule, I like to set my cash advance limits at $0 if that’s possible, since I never want to accidentally use the cash advance “feature” of my credit cards. That way, if a mortgage payment is processed as a cash advance, it will just fail, and you avoid getting hit with cash advance fees.  Special note:  My research indicates that Fidelity cards, such as their card that earns 2% cash back, are likely to treat a mortgage payment as a cash advance.
  7. If you’re intending to make payments in rapid succession, as we did, then, as early as possible in the excess mortgage burn down process, you’ll want to figure out how long it takes payments to clear with the credit card company.  You can determine this by watching a few payments play out.  What you’re looking for is the elapsed time between when you initiate a mortgage payment and when the transaction comes out of the pending state in your credit card account. Note that a payment’s proximity to the weekend can affect this elapsed time. Once you learn these details, adjust your excess mortgage burn down plan accordingly.
  8. Is interest on the mortgage accrued daily or monthly? This is an input to your calculation of the estimated interest you’ll pay on your excess mortgage amount.
  9. It’s common for there to be prepaid interest included the closing costs. Talk to your lender to understand how prepaid interest is calculated and the effect that your chosen closing date (within the monthly cycle) has on that calculation.
  10. What if it turns out that credit card payments will not be possible at all, despite what your research indicated? How quickly can you apply a lump sum payment against your mortgage principle so as to minimize the amount of extra interest you end up paying? Talk to the mortgage department at your bank to answer this question and determine the fastest method of applying capital toward your principle. This will enable you to estimate the worst case interest cost loss for attempting this hack. If you’re not willing to accept that level of risk, then don’t attempt this scheme.

Make your plan

I’d recommend making an excess mortgage burn down spreadsheet, or something similar, to plan this hack. You’ll likely want to include the following columns in your spreadsheet:

  1. Planned Payment Date
  2. Planned Payment Amount
  3. Credit Card you plan to use for the payment  (If you’re only using one credit card in your plan, this can be omitted.)
  4. Reward Value you expect from the payment, net of fees  (This may be a formula based on the payment amount.)

Once you have an excess mortgage burn down plan, you can calculate how much interest you’ll be paying on the excess portion of your mortgage while you execute your plan. Of course, you’ll want the expected reward value earned from your planned credit card payments to be significantly more than the extra interest you’ll be paying. If you want to get fancy and you’re fairly certain of your income tax itemized deductions situation relative to your standard deduction, then you may also want to factor in the tax deduction on the extra interest as a reduction in the net cost of executing your plan.

Conclusion

As mentioned at the outset, finessing a relocation package for profit is potentially lucrative, but also non-trivial and carries some risk. I’m sure there are considerations I’ve missed. Please share your additional thoughts in the comments.