So it has been my understanding that it is through faith alone that we are rewarded with Heaven and eternal life.
Ephesians 2:8-9 teaches us that it is through faith we are saved and by the Grace of God not through works or what we have and haven't done.
Yet here in Matthew 16:27 it's saying Christ will return and reward us based on our works and what we have done.
Can someone help me understand this? Am I missing something here?
I suggest you study Rev 2&3 and look at the problems and the rewards to the overcomers. It is a maturity scale and the rewards progress from the lowest being 'access to the tree of life' and progress to the greatest reward of sharing the throne room with a position of authority within the kingdom.
Salvation is a free gift but your level of glory and position within the eternal kingdom are earned by your spiritual growth and sanctification process. Daniel is also clear that your actions earn you your level of glory within the kingdom.
Da 12:2 And many of them that sleep in the dust of the earth shall awake, some to everlasting life, and some to shame and everlasting contempt.
3 And they that be wise shall shine as the brightness of the firmament; and they that turn many to righteousness as the stars for ever and ever.
So will you be resurrected to shame and everlasting contempt or will you shine with earned glory and rewards within the kingdom?
Salvation is only the beginning of the race. The victors crown goes to those that FINISH the race. That finish isn't heaven, it is spiritual maturity.
Salvation is a free gift. Rewards within the kingdom are EARNED.
Rev 22:12 And, behold, I come quickly;
and my reward is with me, to give every man according as his work shall be.
Crowns, wealth, status and positions of authority within the heavenly kingdom are based on overcoming error, spiritual maturity and works...
So are you just content to crawl through the heavenly gates in spiritual diapers or being a poor, blind, naked beggar or will you shoot for a position of 'ruler over nations', priest or even a king? Heaven will be a caste society based on merit. It is just getting into the kingdom that is a free gift for those that believe.
Just getting in doesn't mean your worthy to be at the wedding feast of the Lamb. Those without their wedding garments (an earned reward) are cast out into the 'outer darkness' (the furthest from the throne of glory within the kingdom) for being unworthy.
There is also the 30,60 and 100 fold increase of the harvest and the parable of the talons. There will be greater and lesser servants within the kingdom. There are works that are wood, hay and stubble verses silver, gold and precious stones.
There are vessels of earth or wood verses vessels of gold and silver in the Father's house.
2Ti 2:20 But in a great house there are not only vessels of gold and of silver, but also of wood and of earth; and some to honour, and some to dishonour.
So will you be an clay chamber pot or a golden goblet in the Father's house?