Can I Pay My Mortgage with a Credit Card?

Managing a mortgage is often one of the biggest monthly expenses for households. Using a credit card to pay the mortgage can appear attractive, especially if facing financial challenges. Credit cards are versatile, commonly used for everyday expenses and even significant payments like taxes. So, can you pay the mortgage with a credit card? Let’s find out.

While it’s feasible and might offer advantages like earning cash back, the process isn’t straightforward. If you’re considering using a credit card to pay your mortgage directly, be prepared for potential complications. Read on for more details.

Is It Possible to Pay the Mortgage with a Credit Card?

While paying your mortgage using a credit card is technically possible, it’s not straightforward and involves specific challenges. Most banks that provide mortgages do not accept direct payments via credit cards. This limitation is primarily because accepting such payments would mean the banks incur transaction fees, which they generally avoid. The feasibility of using a credit card for your mortgage payment also depends on the specific policies of your card issuer and the type of card you have, be it Mastercard, Visa, AmEx, or Discover.

To circumvent these restrictions, some homeowners resort to third-party services that facilitate credit card payments for a fee. Although these services offer a solution, it’s essential to carefully consider whether the costs are justified, especially if your goal is to earn credit card rewards.

Additionally, suppose direct payments are not an option. In that case, other alternatives include using a third-party payment processor that allows mortgage payments via credit cards or opting for a cash advance from your credit card. However, be aware that these methods can be costly. The additional fees may outweigh any rewards earned, making this approach less beneficial financially.

Should You Use a Credit Card to Pay Your Mortgage?

Choosing to pay your mortgage with a credit card might seem attractive, mainly for earning rewards, but it involves serious considerations and risks. Below are key reasons why individuals opt for this payment method and the associated implications:

• Earning Credit Card Rewards:

The main incentive for using a credit card to pay your mortgage is the possibility of earning rewards such as cashback or travel points. Mortgage payments are generally substantial, potentially allowing you to accumulate significant rewards quickly. Credit cards offer various rewards, including sign-up bonuses that may offer cash back after spending a certain amount within the first few months of card ownership.

Regular rewards might provide about 2% back on all purchases. However, third-party services like Plastiq, which may charge a fee ranging from 2.5% to 3%, can diminish or surpass the rewards’ value. This strategy is financially beneficial only if the rewards or bonuses substantially exceed these fees.

• Delaying Cash Outflows:

Some homeowners may pay their mortgage using a credit card to delay the deduction of funds from their bank account. This tactic allows them to retain cash for a few extra weeks, possibly earning interest on these funds. This approach can be particularly effective for managing short-term liquidity, provided the credit card balance is paid off before any interest accrues.

It’s important to remember that this strategy is only beneficial if it prevents you from accruing high-interest debt from a carried balance.

• Preventing Late Mortgage Payments:

Employing a credit card to cover your mortgage payment can be a practical short-term solution when cash is tight. It helps avoid late fees and protects your credit score from potential damage due to a missed payment. However, this should be considered a temporary fix.

Relying on credit cards for extended periods can lead to accumulating debt at high interest rates, making it more challenging to manage finances over time.

• Avoiding Foreclosure and Late Fees:

Mortgages typically have a due date at the start of the month, with lenders often allowing a grace period until the 15th to pay without a late fee. Late fees are imposed after this period, though payment isn’t reported as late to credit bureaus until 30 days past due.

Suppose you need extra time beyond the grace period to make your payment and wish to avoid late fees and credit score damage. In that case, you might consider paying your mortgage with a credit card by the 14th, thus extending your payment deadline by roughly 25 days, provided you don’t carry a balance on the card. This could be cost-effective if the payment processing fee is lower than the late fee charged by your lender and if the credit card balance is paid off by the due date.

In urgent cases, using a credit card can help prevent missed payments and delay foreclosure. However, this method is risky, as credit card interest rates are generally higher than mortgages, and reliance on it can lead to greater financial difficulties. Contacting your mortgage lender for alternatives such as forbearance or loan modification may be a more sustainable long-term strategy.

Common Ways to Pay Your Mortgage with a Credit Card

There are four primary ways to pay your mortgage with a credit card:

1. Using Third-Party Services

Paying your mortgage with a credit card through third-party services like Plastiq can be an option for those looking to earn credit card rewards or meet bonus thresholds. These services function by receiving your credit card payment and then forwarding a check or ACH transfer to your mortgage lender. Although typically utilized for rent payments, platforms such as Plastiq facilitate mortgage payments with credit cards.

Plastiq imposes a transaction fee of 2.85%, which might be worthwhile if the rewards or bonuses you earn exceed this cost. However, using such services as a consistent strategy is generally not advisable unless targeting specific sign-up bonuses or categories that offer high rewards.

It is crucial to recognize that services like Plastiq have certain constraints. Notably, Visa and American Express cards are not accepted for mortgage payments through Plastiq, though Mastercard and Discover cards remain viable options. Additionally, the availability of these payment methods may change, reflecting the dynamic nature of third-party payment platforms.

Opting to pay your mortgage via credit card can provide short-term financial leeway and assist in achieving reward milestones. Nevertheless, this method comes with substantial risks, including high processing fees, the potential for negative impacts on your credit score due to increased credit utilization, and the risk of incurring higher interest debt if the balance is not fully paid off. Therefore, this method should be used carefully considering the financial implications.

2. Using Gift Cards to Pay Your Mortgage via Money Orders

You can use your credit card to buy pin-enabled Visa or Mastercard gift cards, often available at grocery stores, and then purchase money orders with these gift cards. This could be beneficial if your credit card rewards purchases at grocery stores. After setting a PIN for the gift cards, you can place money orders at Walmart or certain banks.

Once you obtain the money orders, you can use them to pay your mortgage by visiting your mortgage-holding bank or sending them through mail. Be aware, though, that mailing money orders poses a risk of loss, potentially delaying your payment and incurring late fees. The feasibility of this method depends on the location, as not every retailer or bank allows these transactions.

Credit card issuers increasingly view gift card purchases as “cash equivalents,” which generally do not qualify for rewards. The costs of buying gift cards and money orders can accumulate, and frequent large transactions might alert your credit card company. Although this method can be useful in the short term, it often doesn’t yield significant ongoing rewards. Moreover, there’s typically a $1,000 limit on money orders, each potentially carrying a fee. Additionally, many merchants don’t accept credit cards for money orders, and some issuers may treat such transactions as cash advances, leading to high fees.

3. Using Cash Advance

Paying your mortgage with a cash advance from your credit card is possible but typically involves high costs and significant risks. When you opt for a cash advance, the credit card company immediately charges a fee for the service.

Unlike regular credit card purchases, which may have a grace period before interest starts accruing, interest on cash advances begins to accrue immediately. Furthermore, the interest rates on cash advances are usually much higher than those on standard purchases, sometimes approaching 30%, depending on your credit card terms.

For instance, if the purchase APR on your card ranges from 19.99% to 29.99%, you could be charged up to 29.99% APR for a cash advance as soon as the transaction is processed. This high cost makes cash advances a pricey method for making mortgage payments, mainly if you cannot clear the balance quickly. Additional costs can include ATM fees if you need to withdraw the cash.

Given the steep fees and interest rates, cash advances should ideally only be considered for immediate, short-term financial needs. If you decide to proceed with a cash advance, paying off the amount as soon as possible is crucial to avoid accruing more interest.

4. Using Balance Transfer Checks

A balance transfer check is a financial tool linked to the credit card that lets you transfer balances from other accounts or settle debts, often benefiting from a promotional interest rate like 0% APR for a specified period. These checks can be instrumental in consolidating debt, though they are not without costs and should be used thoughtfully. Typically, issuing a balance transfer check incurs a fee ranging from 2% to 5% of the transferred sum. For example, transferring $5,000 with a 3% fee increases your debt by $150.

It’s crucial to distinguish between balance transfer checks and convenience checks, as the latter are treated as cash advances and usually come with higher interest rates and fees. Balance transfer checks might also have different interest rates compared to regular purchases. It is vital to understand the terms fully, especially what happens when the promotional period ends. If the balance remains unpaid, the APR could increase significantly, potentially exceeding the standard purchase APR on your card.

Exercise caution with balance transfer checks. While they can help manage high-interest debt, overlooking the introductory offer’s expiration or underestimating the associated fees could render the transfer more expensive than initially planned. Always ensure a solid repayment strategy to avoid accruing additional costs.

Factors to Consider When Paying Your Mortgage with a Credit Card

Using a credit card to pay your mortgage can be appealing, especially if you’re interested in earning rewards or managing short-term cash shortages. However, this method presents several challenges. Below are essential aspects to consider:

• Processing Fees vs. Rewards: Services like Plastiq facilitate credit card payments for mortgages, but they impose processing fees, typically around 2.6%. On a $3,000 mortgage payment, this fee would be approximately $78. This fee often exceeds the rewards earned from most credit cards unless the payment helps you secure a substantial sign-up bonus that outweighs the additional cost.
• Higher Interest Rates: Credit cards generally have higher interest rates than mortgage loans. Failure to pay the full monthly card balance can lead to escalating interest costs. Using your credit card for cash advances or balance transfers to make mortgage payments can incur even higher rates, effective immediately.
• Credit Utilization Impact: Charging a large mortgage payment to your credit card can significantly raise your credit utilization ratio, the proportion of your credit limit in use. For example, a $3,000 payment on a $8,000 credit limit increases your utilization to 37.5%. Credit utilization rates above 30% can negatively affect your credit score.
• Introductory Offers: Many credit cards offer introductory 0% APR periods, allowing you to make purchases or transfer balances without accruing interest for a limited time. It’s important to thoroughly understand the terms of these offers and ensure you can fully repay the balance before the promotional period expires to avoid interest charges.

Before using a credit card for mortgage payments, explore other options, such as refinancing, forbearance, or negotiating a repayment plan with your lender. These alternatives may provide financial relief without the extra costs and potential credit score impact of credit card payments.

Alternatives to Using a Credit Card for Paying Your Mortgage

Paying your mortgage with a credit card often involves high fees and could affect your credit score. It’s beneficial to consider other payment methods. Here are some practical alternatives:

• Automatic Bank Transfers: Setting up automatic transfers from your bank account is straightforward and reliable. This automated process ensures payments are always on time. However, it’s essential to maintain sufficient funds in your account to avoid potential overdrafts and the associated fees.
• Refinancing Your Mortgage: You might reduce your monthly payments through a lower interest rate or a longer loan term. Even a reduction as small as 1% can significantly decrease the amount paid over time. Calculate closing costs to confirm that refinancing provides a net benefit.
• Bi-Weekly or Additional Payments: Making payments more frequently than required, such as bi-weekly or adding extra payments when feasible, can decrease the principal more quickly and reduce the interest paid. This method is beneficial if you sometimes have additional funds to apply toward your mortgage.
• Loan Modification: Modifying your loan terms might be an option for those facing financial challenges. This could mean a lower interest rate or an extended payment period, which can lower your monthly expenses. Typically, you’ll need to demonstrate financial need to qualify for modification.
• Removing Private Mortgage Insurance: If your initial down payment was below 20%, you’re likely paying private mortgage insurance (PMI). Once you achieve at least 20% equity in your home, you can ask to cancel the PMI, which can lower your monthly payment. Note that some loans, such as FHA loans, may require refinancing to eliminate PMI.

Conclusion

While paying your mortgage with a credit card is technically possible, it’s often a complicated and costly approach. Between high processing fees, potential impacts on your credit score, and the risk of accumulating high-interest debt, the disadvantages typically outweigh the benefits, mainly if you use this method without a clear financial plan.

Although it may provide short-term solutions like earning rewards or managing cash flow, alternatives such as refinancing, automatic transfers, or exploring loan modifications are usually more sustainable and financially sound in the long run.

Frequently Asked Questions