Can You Pay Your Mortgage With A Credit Card?
Credit cards come in handy for a variety of purchases, and some companies offer appealing rewards programs to incentivize spending. While you might be tempted to maximize your rewards points earnings at every turn, you can’t use plastic to pay for everything. For instance, most mortgage lenders don’t allow you to make mortgage payments with a credit card.
In this article, we’ll discuss the reasons why this is the case. We’ll also discuss a few workarounds that may allow you to pay your mortgage with a credit card, as well as the serious potential risks of doing so.
Why Most Lenders Won’t Let You Use A Credit Card To Pay Your Mortgage
Most lenders won’t let you pay your mortgage with a credit card because it can lead to a cycle of debt that’s difficult for many borrowers to escape. When a borrower uses a credit card to pay their mortgage, they’re essentially transferring debt. If this pattern of taking on new debt to pay off existing debt becomes too much for the borrower to sustain, they may end up defaulting on their mortgage. This is, of course, a serious situation for any homeowner.
The above risks to borrowers are particularly acute with credit cards, because interest rates on credit cards tend to be much higher than mortgage rates.
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Are There Workarounds For Using A Credit Card To Pay Your Mortgage?
While mortgage lenders generally don’t allow borrowers to pay their mortgage with a credit card, third-party processors such as Plastiq will make mortgage payments for a fee. For example, Plastiq’s fee for 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 direct 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 that deal with the technological infrastructure associated with making the system work.
Finally, if you turn to a third party, it’s important to note that not every credit card issuer works with every service that facilitates this. For instance, although MasterCard and Discover® support Plastiq, Visa and American Express® don’t allow their cards to be used on the platform.
Are There Benefits To Paying Your Mortgage With A Credit Card?
Whether mortgage payments can be made with a credit card is not an uncommon question that mortgage servicers get once people close on their loans. The reason for this is that in the right situation, credit card payments can benefit the consumer. Let’s take some time to acknowledge the potential benefits:
- 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.
- Get a rewards sign-up bonus: Some credit card issuers offer sign-up bonuses where you get something special, like bonus airline miles, if you reach $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 your highest monthly bill.
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’d 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 hit to your credit and a late fee if you have a cashflow 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 any affect on your credit or 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 their bank 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.
What Are The Risks Of Paying Your Mortgage With A 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.
- 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, a cardholder 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.
- Cost-prohibitive fees: This just comes down to math. It doesn’t make sense to pay 2.5% in fees if you only get 1.5% back in rewards (after accounting for any bonus incentives).
- The risk of 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 interest rates.
- 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 of 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.
- The burden of high-interest debt: 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.
The Bottom Line: Think Long And Hard Before Using Plastic
Usually, mortgage companies don’t let you make your payment with a credit card, because rolling existing mortgage debt into a high-interest credit card may introduce financial liability for both the lender and the borrower. If you want to get around this, you can use a third-party service, but they charge fees – meaning you’ll need to determine if the benefits outweigh the costs.
Good credit habits are key to bettering your financial situation. Here’s some more info on establishing good credit.
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