Can You Pay Your Mortgage With a Credit Card?
Paying a mortgage with a credit card has some advantages, like rewards points on your credit card, and some disadvantages, like associated fees. Continue reading to find out if this is a good option for you.
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Can You Pay Your Mortgage With a Credit Card?
Banks and mortgage companies typically don’t accept direct credit card payments. One reason is that credit card processing fees would eat up a sizable chunk of the payment. Say, for example, you’ve had your mortgage for several years, and your interest rate is only 3%. If you used a credit card to make your payments, the lender could pay a processing fee of around 1.5%, effectively losing half of the interest it charges you just to process your payments.
The other reason mortgage lenders don’t accept credit cards is that the additional debt you accumulate could eventually jeopardize your ability to repay your mortgage loan. Charging payments doesn’t lessen your debt. To the contrary, it converts “good” debt with a modest interest rate into bad debt with a much higher interest rate. Just as compound interest grows your savings account balance exponentially faster as you save more, it has the same effect on your debt balance.
How To Pay Your Mortgage With a Credit Card — Indirectly
You can’t make a direct credit card payment to your mortgage lender, but you can use your card to pay indirectly. Overall, however, the costs incurred with credit card mortgage payments might make the choice less appealing than paying with cash.
Payment Platform
While several payment processing companies let you make bill payments by credit card, the only one GOBankingRates found that lets you make mortgage payments that way is Plastiq. However, there’s a catch. Visa and American Express don’t allow their cards to be used for mortgage payments, so you’ll have to use Mastercard or Discover. Plastiq charges a 2.9% fee for payments funded with a credit card.
Balance Transfer Check
If you have a credit card with a balance transfer option, you can use it to send your mortgage lender a check. The check will be drawn against your credit card, so in addition to a balance transfer fee of 3% to 5% of the transfer, you’ll pay interest on the amount charged to your card, so it might only be worthwhile if your card is offering a 0% promotional rate on transfers.
Cash Advance
You can also use your credit card to make mortgage payments with a credit card cash advance. First, go to an ATM and withdraw cash against your credit card. Then deposit the money into your checking account and pay the mortgage from there. Just be aware that credit card companies charge higher interest rates on cash advances than they do on purchases.
Visa or Mastercard Prepaid Card
Visa and Mastercard both allow their debit cards to be used for mortgage payments. You can use your credit card to buy a Visa or Mastercard prepaid card and then use the prepaid card to pay your mortgage.
Benefits of Using a Credit Card To Pay Your Mortgage
Paying your mortgage with a credit card isn’t an ideal situation under any circumstances, but you can use this payment method to your advantage.
Earn credit card welcome bonuses and rewards points: You can earn welcome bonuses and rewards quickly by charging large expenses on your credit card — just pay the card off each month or else lose those rewards to interest.
Pay your mortgage off early: If you have a low balance on your mortgage and a 0% promotional rate on a Mastercard or Discover card, you could use the card to pay off your loan through Plastiq. If you pay off the card in full before the promotional rate ends, you’ll have paid just a 2.9% fee on the amount you charged.
Avoid late fees: You’ll have to do the math to see if it’s worth it, but charging your mortgage payment can save you from making a late payment and incurring a late fee.
Avoid foreclosure: In a worst-case scenario where you’re several months behind in your mortgage payments, paying by credit card could keep you out of foreclosure.
Potential Risks of Using a Credit Card To Pay Your Mortgage
While receiving credit card rewards might be an incentive to pay your mortgage with a credit card, doing so comes with risks. If you’re looking to avoid foreclosure or postpone mortgage payments by paying with a credit card, consider the following possibilities:
Serious damage to your credit score: If you don’t already have excellent credit, paying with a credit card can be a huge mistake. You could go above the recommended credit utilization ratio of no more than 30%, thus ruining your credit score and making it harder to borrow money later.
Third-party fees: Payment processing platforms are third-party solutions for making payments. The fees charged by these platforms might seem low at first, but they add up over time and might cancel the rewards benefits of using the credit card.
Potentially going deeper into debt: If you’re trying to avoid foreclosure and late fees on your mortgage, you risk going further into debt by using a credit card to pay your mortgage. You’ll accumulate additional interest, making it harder to pay back what you owe your creditors.
Credit card payments might not be accepted: Your credit card issuer might reject payments from a third party, which could make you late on your mortgage payment. Your credit card payment may also be rejected entirely if you are above your credit limit.
Alternatives to Paying Your Mortgage With a Credit Card
You have other options for paying your mortgage when you’re short on cash.
Use gift cards: If you have unused gift cards, you can use them as a Plastiq payment method for making your mortgage payments.
Raise the money: You might be able to raise the money for your mortgage payment with a side gig or by selling belongings you can live without.
Call your mortgage loan servicer: Your mortgage statement and online account tell you what company services your loan. Contact the servicer to let it know you’re having difficulty making payments. There’s a good chance it will have a solution for your unaffordable payment, especially if your hardship is temporary.
Final Take
Now that you know the potential risks and benefits of paying your mortgage with a credit card, you can decide if it’s the right move for you. Some immediate rewards could be bonuses and cash back. But if you can’t pay what you owe on your mortgage within a short time, you could run the risk of increasing your debt and decreasing your credit score. Finding an alternative way to manage the payment might be the best way to go.
FAQ
Here are the answers to some of the most frequently asked questions about using a credit card to pay your mortgage.
Is it better to pay your mortgage with a credit card?
No. Most mortgage lenders won't let you pay that way. There are ways around that restriction, but they all add to the cost of your payment and dig you deeper into debt.
Why can't you use your credit card to pay your mortgage?
Credit card processing fees make it too expensive for mortgage lenders to accept credit cards. Also, paying lower-interest mortgage debt by taking on high-interest credit card debt increases your risk of defaulting on your mortgage. Lenders are unwilling to accept that risk.
Should you pay your mortgage with a credit card?
While there are advantages to using a credit card to pay your mortgage, the drawbacks include added fees, higher interest rates and taking on more debt. Consider it a last resort.
Kathy Evans contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Can You Pay Your Mortgage With a Credit Card?
