Credit cards can be extremely convenient, and who doesn’t like taking advantage of those rewards programs? But you can’t use your credit card to pay for everything. For instance, most mortgage lenders don’t allow you to make your mortgage payment with a credit card. Quicken Loans® doesn’t allow it either. Why?
The inability to pay your mortgage with a credit card works as a consumer protection measure. If you pay with a credit card, you could end up falling into a cycle of paying off debt by taking on other debt on your credit card accounts. The risk is particularly acute with credit cards because interest rates on these revolving accounts tend to be much higher than mortgage rates.
In this article, we’ll go over ways you still may be able to use your credit card to make payments while also acknowledging the potential benefits and drawbacks of doing so.
Are There Workarounds For Using A Credit Card To Pay My Mortgage?
Mortgage lenders generally don’t allow borrowers to pay their mortgage with a credit card. Third-party processors, like Plastiq, will make mortgage payments for a fee. Plastiq’s fee for processing credit card payments is 2.5%.
Before you jump through hoops to use a third-party service, you should check and see if your lender will allow you to make payments using a credit card. As mentioned above, it’s not likely because lenders don’t want to have you take on additional debt to pay off existing debt.
Even if the lenders do make a credit card payment option available, you may run into a case where the card issuer doesn’t let you make the mortgage payment on the card as part of their risk mitigation strategy.
At this point, we should clarify some vocabulary. The issuer is the creditor you got the card from. Services like Visa® and MasterCard® are payment processors who deal with the technological infrastructure associated with making the system work.
Finally, if you do turn to a third party, it’s important to note that not every credit card issuer works with every service that facilitates this type of thing. For instance, although Plastiq is supported by MasterCard and Discover®, Visa and American Express® don’t allow their cards to be used on the platform.
Are There Benefits To Making Mortgage Payments By Credit Card?
The question of whether mortgage payments can be made with a credit card is not an uncommon one for mortgage servicers get once people close on their loan. The reason for this is that in the right situation, making a payment with your credit card can have benefit for a consumer. Let’s take some time to acknowledge the potential pros:
- Earn more credit card rewards: If you earn substantial credit card rewards through your card issuer, you may be able to earn more cash back or points that can be traded for things like gift cards, experiences or airline miles. However, you’re going to want to do some math. It doesn’t make sense if you have to use a third-party platform whose fee represents more of a percentage than you’re getting back in rewards.
- Rewards sign-up bonus: Tied in with the above is that some credit card issuers will do sign-up bonuses where you get something special, like bonus airline miles, if you make $5,000 in transactions on your card within the first 60 – 90 days, for example. Using your card to make a mortgage payment could help you meet those goals because it’s likely to be the highest monthly bill you have. Again, if you’re paying through a third party, it’s important to consider whether the combination of the rewards you learn with every purchase plus the enticement of the bonus outweigh the additional fee you would pay for making your mortgage payment with a credit card.
- Avoid late fees: You might wish to pay with your credit card to avoid a late fee if you have a cash flow gap and don’t have the money right now. One thing to keep in mind is that generally in mortgage contracts, you have a grace period of up to 15 days to make your mortgage payment after the due date without a late fee. You should check your mortgage documentation to see what applies in your case.
- Make money on interest: If their credit card payment is due after their mortgage payment, some people will try to pay the mortgage with the credit card to let their money sit in the account gaining interest until the credit card payment is due.
- Stave off foreclosure: Those in the most dire straits may choose to make payments on their credit card to avoid the pain of a foreclosure on their home. For reasons we’ll get into below, it’s far better to reach out to your servicer for help at the first sign of trouble. Quicken Loans clients can apply for assistance online or give us a call at (800) 508-0944.
What Are The Risks To Making Mortgage Payments By Credit Card?
While there can be benefits to making payments with the credit card, if you don’t ask the mortgage lender, the card issuer and the processor or third-party payment processor the right questions, there are some real issues that could come up in addition to putting yourself in the hole.
- Possibility of rejected payments: As mentioned above, a lot of puzzle pieces have to fit to even make payments with a credit card. If the payment isn’t accepted, you could end up unintentionally late and get hit with another fee. You need to discuss with the lender what your options might be. If you end up working with a third party, you should make sure it’s one that accepts your card.
- Fees may be cost-prohibitive: This just comes down to math. It doesn’t make sense to pay 2.5% in fees if you’re only getting 1.5% back in rewards (after accounting for any bonus incentives).
- Look out for cash advances: Depending on their policies, the credit card issuer or third-party payment processor can choose to initiate the transaction as a cash advance to just cut the check to your mortgage servicer. If they do this, cash advances come with the highest rates of interest.
- Potential for negative credit impacts: Making a payment as large as your mortgage on a credit card drastically drives up your credit utilization ratio. It’s generally recommended that you have credit card balances no more than 30% of your overall limit at any given time. If you do go beyond that number, it can reduce your FICO® Score, which in turn could hurt your ability to qualify for other credit and loans.
- Racking up high-interest debt can be punitive: If you find yourself at a point where you’re trying to use your credit card because it’s the only way you can make payments and avoid foreclosure, please call your mortgage servicer. If you can’t make your mortgage payment, it’s likely to take you much longer to pay off the credit card bill because the cards come with very high interest rates if you don’t pay the balance off every month.
Summary: Think Long And Hard Before Using Plastic
Usually, mortgage companies don’t let you make your payment with a credit card. The idea is that you don’t pay for existing debt by rolling it into high-interest credit card debt. If you want to get around this, you can use a third-party service, but they charge fees. You should be aware of whether the pay off you’re doing in terms of rewards points is worth the fee.
In some instances, you may be looking to pay with your credit card to avoid a late fee. However, it’s important to note that you can take advantage of the grace period in your mortgage contract rather than increase your credit utilization. If you’re really in trouble, it’s best to speak to your mortgage lender or servicer before taking on more high-interest debt to make mortgage payments.
Good credit habits are key to bettering your financial situation. Here’s some more info on establishing good credit.