What You Need To Know To Pay Your Mortgage With A Credit Card
Most things can be paid off with a credit card, from groceries to gas to online purchases. Considering how ubiquitous credit cards are, it’s surprising that, more often than not, you can’t use one to pay off one of the biggest monthly expenses – your mortgage.
In fact, most lenders won’t accept your American Express, Mastercard, or Visa as payment. So if you want to pay your mortgage with a credit card, you’ll need a few “hacks” to get around this roadblock.
Common Challenges When You Pay Mortgage On Credit Card
The biggest obstacle is that a majority of lending companies do not accept credit as a valid form of payment. It makes sense if you think about it because you’re basically using one form of debt to cover another.
The mortgage payment companies that do offer some sort of credit card payment system charge as much as 2.5% on every payment you make – at an average mortgage payment of $1,500 per month, that’s $37.50 in processing service fees alone. It may not sound like much, but that amount stacks up to a whopping $13,500 over a 30-year mortgage.
Plus, if you don’t have a handle on your finances, credit card interest charges (which are on top of the interest you’re already paying for the mortgage itself) can blow up your payable amount.
Another similar hurdle is that credit card networks like American Express, Discover, Mastercard, and Visa may not allow mortgage premiums to be charged onto your card. You’ll have to check with your issuing bank if you can use your card to pay your mortgage.
Why You’d Want To Pay Mortgage By Credit Card
With all of the obstacles to paying a mortgage with a credit card, why would you still do it? Well, on the flip side, there are plenty of benefits. Here are the most common:
Credit Card Rewards
We all love rewards. Credit card issuers offer perks when you spend on credit such as shopping discounts, cashback, airline miles, or even a sign-up bonus. After all, if you’re going to spend hundreds or even thousands of dollars every month on your mortgage payments, you might as well earn credit card rewards while you do it.
Plus, certain rewards only become accessible if you spend a specific amount within the first few months of getting a new card – it’s a lot easier to meet the threshold for these sign-up bonuses if you use it on a big-ticket item like a mortgage payment.
Cash Savings & Interest
Obviously, every dollar you spend on credit is a cash dollar saved for other purposes. For example, you can put it in a savings account (where it earns interest) or invest it in something to earn even more money. The key to taking advantage of this is to make sure to pay your credit cards on time; otherwise, the interest you accrue could significantly outweigh any of the savings or rewards benefits.
Late mortgage payments come with late fees and could hurt your credit score. If you use your credit card to pay your mortgage, you don’t have to pay it off until your next billing cycle. You basically get an interest-free “payment extension”, again, as long as you pay on time.
If you’re behind on your mortgage payments, using credit cards can help you avoid foreclosure. Of course, if you’re already that much behind, additional credit card debt is the last thing you need, so you might want to talk to a financial counselor or your lender instead.
Using credit cards is a good way to build your credit history, which factors into your credit scores, and, overall, your ability to take out loans. Still, be cautious about this – charge too much to your credit card and you’ll negatively impact your credit utilization rate.
What To Consider Before Paying Mortgage On Credit Card
So, how do you know that paying your mortgage with a credit card is the right call? Here are the most important factors that you need to take into consideration before charging your mortgage payment to your card:
Some credit card companies offer a big incentive – usually in the form of a cashback or points – so that you’ll spend a lot in the first few months after getting a new credit card. To earn your sign-up bonus, you’ll have to hit a specific threshold; for example, $3,000 in the first 3 months.
If you have a bonus that you want to meet but wouldn’t otherwise get through your usual spending, then paying your mortgage with a credit card could be a good opportunity to do so.
Credit card rewards alone can make this worth it, but you need to compare it to how much you’re spending on fees. For example, if you have a $2,000 mortgage with a 2% cashback, a 2.5% service fee would put you at a loss. A cashback/rewards points/airline miles equivalent of 3%+ would make this worth it, as would a sign-up bonus or additional benefits.
Credit card interest is usually triple or even quadruple the standard mortgage interest. Because of this, we would only recommend paying your mortgage with a credit card if you can commit to paying your bill in full. This way, you won’t accrue any additional interest on top of what you’re already paying, saving you thousands of dollars in the long run.
Service Fees & Other Charges
Since most lenders don’t accept credit, you’ll likely have to use a third-party payment processor just to use your card. This convenience comes at a fee, which is usually a percentage of your mortgage payment. Always factor this into your cost-benefit analysis – sometimes, the service fee is simply too high to justify using a credit card.
Credit Score Impact
We touched on credit utilization a bit earlier, but let’s talk about it more in detail. Your credit score is calculated based on a variety of factors, one of which is your utilization rate. Your credit card utilization is how much of your credit you’ve used versus your total credit limit.
You can pay your mortgage with a credit card, but it could increase your utilization rate if you don’t pay on time. A good rule of thumb is to keep your credit utilization at 30% for a good credit score.
When you should use a credit card
When you shouldn’t use a credit card
- You will receive rewards or bonuses that you wouldn’t normally get without your mortgage payment. - The rewards/bonuses are worth more than the processing fee. - You can pay off your credit card balance in full every month.- You won’t go over a 30% utilization rate on your cards.
- The processing fee outweighs the benefits of your rewards/bonuses. - You carry your credit card balances over into the next month, accruing interest rates on your purchases. - You struggle at keeping your credit card utilization within the recommended 30% rate.
How To Pay Mortgage With Credit Card
Although you won’t be able to pay your mortgage with a card directly, there are a few ways to get around this limitation. Below, we’ll go through each method and its pros and cons.
Third-Party Online Payment Processors
The most common way to pay your mortgage with a credit card is to go through a third-party payment service. There are processors like Plastiq which charge a small fee in exchange for allowing you to pay any bill – even your mortgage – using credit.
These mortgage payment facilitators accept Discover and Mastercard; American Express and Visa still do not allow mortgage payments on their network. You can set up automatic payments every month to make it even more convenient.
Third-party processors allow you to make the most of your credit card rewards, but it can get pretty expensive if you do it regularly. Plastiq charges up to 2.85% per transaction, so you could potentially lose more money than you stand to benefit.
If you want to charge your mortgage payments to your card without using a third-party payment service, another way you can go about this is by buying a prepaid card. Both Visa and Mastercard allow lenders to accept payments through their prepaid cards, and you can load one with your credit.
Similar to prepaid cards, money orders can be bought using credit cards. You can get one at your nearest bank, grocery, or large retailer. They’re not free to purchase and they have limits (often up to $1,000 only), but the fee is small especially when compared to the fee of a payment processor.
Another common way people get around the credit card limit for payments is by using their cards to take out a cash advance. You’re often able to advance a percentage of your unused credit and withdraw it as cash. Keep in mind that the interest rate for cash advances is often much higher, with the average rate closing in at nearly 25%. If you can’t pay off your balance on the due date, do not take out a cash advance.
Paying off your mortgage with a credit card can be incredibly helpful in a pinch, but it’s a double-edged sword. If you aren’t cautious about your finances, you could lose thousands of dollars and hurt your credit scores. But if you can pay on time and avoid the dreaded credit card interest charges, then this could be a viable solution for you.
If you’re struggling with your mortgage, however, the best thing you can do is talk to a credit counselor. Reach out to Wesley Mortgage, LLC today and learn more about how we can help you reduce your debt!