Credit cards can be helpful for a number of reasons. They can build up your credit score, and their rewards systems can provide you with some extra cash. However, there are also plenty of risks associated with credit card use. If you don’t pay off the balance in full every month, the interest can quickly get out of control.
Because there are both benefits and drawbacks to using a credit card, homeowners sometimes wonder whether they can or should put their mortgage payments on their credit card. Different financial experts offer different opinions on whether or not this is a good decision. If you’re considering using your credit card for mortgage payments, you should understand how to do it and what the possible risks are.
Can You Pay Your Mortgage With a Credit Card?
Most mortgage lenders do not accept credit cards as a form of payment. Putting your payment on your credit card is replacing one form of debt with another, so your lender may see this as an increased risk of you defaulting on the loan. Your credit card issuer also might not allow you to use the card for your mortgage payments.
However, you may still be able to pay your mortgage with your credit card if you use a third-party service. With a third-party payment processor, you can use your credit card for practically any type of payment.
The most popular third-party processor for mortgage payments is Plastiq. This service charges a transaction fee of 2.85 percent, so you should expect to pay extra if you make your mortgage payment with your credit card. Plastiq also only allows mortgage payments with Mastercard and Discover cards, so if you only have a Visa or American Express card, you won’t be able to use the service.
Online payment services are constantly changing, so more options may open up in the future. New third-party processors launch fairly frequently, but it’s not uncommon for these services to shut down, too. Plastiq and other processors may change their fees and terms of service, so if you choose this option, you have to stay up-to-date on their current rules and regulations.
Another option is to use your credit card to obtain a money order, which you can use for your mortgage payment. Although you cannot buy a money order with a credit card, you could use the credit card to purchase a pin-enabled Visa gift card. Then, you can use the gift card to buy the money order.
This strategy is not foolproof as many merchants have a $1,000 limit on money orders. If your mortgage payment exceeds the limit, you won’t be able to make the full payment with your credit card. You’ll also have to make multiple in-person transactions with this method, which can be time-consuming. Most homeowners don’t want to go through all these steps every single month to make their payments, so buying a money order may only be a reasonable option for a one-time payment.
Benefits of Using a Credit Card for Your Mortgage
One of the best advantages to using your credit card for your mortgage is that you can collect rewards and bonuses. Many credit card companies offer sign-up bonuses if you spend a certain amount of money within your first few months of being a cardholder. For example, they might offer a $250 bonus if you spend $3,000 in your first two months. You may not be able to reach that amount if you only make small purchases with the card, but by putting your mortgage payment on the card, you could easily earn the bonus.
The other way to earn rewards from your credit card is with ongoing cash back. Most cards give a certain percentage of your spending back to you each month. Some cards have better cash back deals than others, so not all cards offer enough cash back to counteract the fee you’ll pay for using a third-party processor. If your credit card has a great cash back agreement, though, you could save money on your mortgage payments. For example, if your card offers you 3 percent cash back, it will cover Plastiq’s 2.85 percent transaction fee, and you’ll still have some rewards left.
Using your credit card for your mortgage can also help you avoid a late payment. If you run into an unexpected financial emergency and can’t make your mortgage payment in time, you might face expensive late charges or derogatory marks on your credit report. Putting the payment on your credit card can buy you some extra time to come up with the funds. Your card balance won’t accumulate interest between the statement issue date and the payment due date, so you’ll have a few more weeks to get the money without paying extra in interest or late fees.
Risks of Using a Credit Card for Your Mortgage
If you pay your credit card off diligently every month, you may find that the benefits of using your card for your mortgage are worth the effort of going through a third-party processor. Using a credit card for any purchase has its risks, though, and it can be especially problematic for something as large as a mortgage payment.
Some credit cards consider a charge from a third-party processor to be a cash advance. In many cases, cash advances start accumulating interest immediately at a high rate. Before you use Plastiq to make your mortgage payment, you should thoroughly read your credit card agreement to ensure that you won’t face steep charges for getting a cash advance.
Relying on your credit card for your mortgage payment is incredibly risky if you aren’t certain that you’ll pay off the balance in full every month. If you leave the balance on the card for a long time, you may end up paying hundreds of dollars in interest. It’s important that you be honest with yourself about your financial habits before you use your credit card for your mortgage. If you have a history of accumulating credit card debt, putting your mortgage payment on the card could lead to financial devastation.
Your credit card could be a valuable resource if you’re facing a short-term financial issue and don’t have the funds to pay your mortgage on time. If you’re struggling to make ends meet every month, though, you should avoid using your credit card for the payment. Although it’s tempting to use your line of credit to keep your home, adding credit card debt to an already difficult financial situation isn’t in your best interest.
It’s unlikely that your mortgage lender will let you make payments directly with your credit card, but you may be able to use a third-party service. Making such a large payment with your credit card isn’t a decision to take lightly, though. Under certain circumstances, you may save some money by using your credit card. There are several risks, though, so you have to carefully weigh the pros and cons before you make the transaction.
Michael Carr is the Co-Founder & COO of BrandFace, LLC. He is also a real estate branding expert and international bestselling author. As America’s Top Selling Real Estate Auctioneer, he has sold billions of dollars in commercial and residential properties.