Key Highlights
- Most mortgage lenders don’t accept direct credit card payments, so you’ll likely need a third-party payment service.
- Using a credit card for your mortgage payment involves fees, typically a percentage of your transaction.
- Paying your mortgage with a credit card can help you earn rewards or meet a welcome bonus, but the fees might cancel out the value.
- This payment method can significantly increase your credit utilization ratio, potentially lowering your credit score.
- High credit card interest rates can lead to a dangerous debt cycle if you can’t pay your balance in full each month.
- Consider safer alternative options like loan modification or automatic bank payments before using a credit card.
Introduction
Your mortgage is likely your largest monthly expense, so the idea of charging it to a credit card to earn rewards is tempting. But is it possible, or even a good idea? While you can technically make a mortgage payment with a credit card, the process isn’t straightforward. It involves extra steps, potential fees, and significant risks that could affect your financial health and credit score. Before you swipe, it’s crucial to understand all the factors involved.
Can You Pay Your Mortgage With a Credit Card?
Yes, it is possible to pay your mortgage with a credit card, but it’s not as simple as using it at the grocery store. Most mortgage lenders do not accept direct credit card payments. They prefer payments from a bank account via check, money order, or bank transfer.
To use a credit card, you will likely need to use an intermediary, like a third-party payment service. These services charge your card and then send the money to your mortgage company. This workaround comes with its own set of rules and costs that you need to consider.
Mortgage Lender Policies and Restrictions
The main obstacle you’ll face is that most mortgage lenders have policies against accepting credit card payments directly. Lenders typically require payments from a checking or savings account because they want to avoid the processing fees charged by credit card networks like Visa and Mastercard.
Even if a mortgage lender were open to it, your card issuer and the card network would also have to approve the transaction. This alignment between your mortgage company, credit card issuer, and the payment network is rare. Trying to make a direct payment will almost certainly be declined.
This is why third-party payment services exist as a workaround. They bypass the lender’s restrictions by acting as a middleman. However, these services pass the processing fee on to you, which is an important cost to factor into your decision. Using this method can also affect your credit score by increasing your credit utilization.
Why Most Lenders Don’t Accept Credit Cards Directly
The primary reason most mortgage lenders don’t allow direct credit card payments is to avoid transaction fees. Credit card companies charge merchants a fee, typically 2-3% of the transaction amount. On a large mortgage payment, this fee can add up to a significant cost that lenders are unwilling to absorb.
Another key reason is the nature of the debt. A mortgage is a secured loan backed by your home, while a credit card is unsecured debt. Lenders see it as risky to allow you to pay one form of debt with another, as it can create a precarious financial situation for the borrower.
Finally, some credit card issuers also have rules that prevent their cards from being used for mortgage payments. This combination of restrictions from both lenders and card companies makes direct payments nearly impossible, forcing you to look at indirect methods if you want to proceed.
Methods to Pay Your Mortgage With a Credit Card
Since you probably can’t pay your lender directly, you’ll need to use an indirect payment method. The most common approach is using a third-party payment service that processes the transaction for you. These platforms accept your credit card and then pay your mortgage company on your behalf.
Other, much riskier, methods include using a cash advance or a balance transfer check from your credit card. These options effectively let you borrow cash against your credit limit to make the payment. Each of these methods has distinct steps, costs, and risks to evaluate.
Third-Party Payment Services Explained
A third-party payment service like Plastiq is the most straightforward way to use a credit card for your mortgage. You provide your credit card information and mortgage details to the service, and they handle the rest. They charge your card for the mortgage amount plus a fee, then send a check, ACH transfer, or wire transfer to your mortgage company.
The main drawback is the cost. These services charge a transaction fee, which is a percentage of your payment. For example, Plastiq charges a 2.9% fee for credit card transactions. This fee can quickly erase any rewards you might earn.
It’s also important to be aware of other potential limitations:
- Card Network Restrictions: Some services, like Plastiq, only allow mortgage payments with Mastercard or Discover cards, not Visa or American Express.
- Processing Time: Payments can take several business days to process, so you must plan ahead to avoid a late payment.
- Delivery Fees: In addition to the transaction fee, there may be small fees for how the payment is delivered (e.g., ACH transfer).
Using Balance Transfers or Cash Advances
Another way to use your credit card for a mortgage payment is through a cash advance. This involves borrowing cash against your card’s credit limit, which you can then use to pay your mortgage. However, this is a very expensive option. Cash advances typically come with a high upfront fee and start accruing interest immediately at a very high rate, often up to 29.99% APR, with no grace period.
Similarly, some credit card issuers provide balance transfer checks. You can write one of these checks to yourself, deposit it into your bank account, and then use the funds to pay your mortgage. Like a cash advance, this method usually involves a significant fee and a high interest rate, making it a costly choice.
Both cash advances and balance transfer checks should be considered a last resort. The high fees and immediate interest charges can quickly put you in a worse financial position and should only be contemplated in a true emergency when all other options have been exhausted.
Fees and Costs to Watch Out For
When you pay your mortgage with a credit card, you’re almost guaranteed to face extra costs. The most common are the processing or service fees charged by third-party payment platforms. These transaction fees are typically a percentage of your mortgage payment, adding a significant amount to your monthly bill.
Beyond service fees, the biggest financial risk is the high credit card interest charges. If you can’t pay off the credit card balance in full by the due date, you’ll be hit with interest rates far higher than your mortgage rate. These costs can quickly snowball, making this an expensive way to pay.
Processing and Service Fees
When using a third-party payment service, you can’t avoid the processing fee. This fee is how the service makes money, as they cover the transaction cost that your mortgage lender refuses to pay. The fee is usually a percentage of your total payment amount, with 2.9% being a common rate.
For example, if your monthly mortgage payment is $2,000, a 2.9% fee would add an extra $58 to your bill. Over a year, that’s nearly $700 in additional fees just for the convenience of using your credit card. This cost can easily outweigh the value of any rewards you might earn from the transaction.
Here’s a look at how these fees can add up:
| Monthly Mortgage Payment | Processing Fee (2.9%) | Additional Annual Cost |
|---|---|---|
| $1,500 | $43.50 | $522 |
| $2,000 | $58.00 | $696 |
| $2,500 | $72.50 | $870 |
Before proceeding, always calculate if the rewards you earn will be greater than the fees you pay.
Interest Charges and Potential Penalties
The most significant financial danger of paying your mortgage with a credit card is the potential for high interest charges. Credit card interest rates are notoriously high, often exceeding 20%. If you charge your mortgage payment and don’t pay off the entire credit card balance by the due date, that interest will start to accumulate.
This can create a fast track to mounting debt. Unlike your mortgage, which has a relatively low interest rate, credit card debt grows very quickly. What started as a way to earn rewards can turn into a costly financial burden that is difficult to escape.
Furthermore, if you are unable to pay your credit card bill on time, your card issuer may charge you late fees. In some cases, they might even impose a penalty APR, which is an even higher interest rate applied to your balance. These penalties add another layer of cost and risk to an already expensive payment method.
Benefits of Paying Your Mortgage With a Credit Card
Despite the risks, there are a few situations where paying your mortgage with a credit card might make sense. The most appealing benefit is the opportunity to earn credit card rewards. A large mortgage payment can help you accumulate a significant number of points or miles, especially if you’re trying to reach a specific goal.
Another potential benefit is for managing short-term cash flow or meeting the spending threshold for a valuable welcome bonus on a new card. In very specific circumstances, and only if you can pay the balance off immediately, the advantages might outweigh the costs.
Rewards, Points, and Bonuses
Using a rewards credit card for your mortgage seems like an easy way to rack up bonus points. However, you must do the math carefully. Most rewards cards offer 1% to 2% back on general purchases. If the third-party service fee is 2.9%, you’ll lose money on the transaction. For example, earning 2% cash back ($40) on a $2,000 payment while paying a $58 fee results in an $18 loss.
The one time this strategy can be profitable is when you’re trying to meet the spending threshold for a large welcome bonus on a new card. If a new card offers 80,000 points (worth around $800) for spending $4,000 in three months, using your mortgage for two months could help you hit that target. Even after paying fees, the value of the rewards could be worth it.
Before you proceed, remember these key points:
- Calculate if the value of the rewards is higher than the fees.
- This strategy only works if you pay the credit card balance in full.
- Ensure the payment service accepts your type of credit card (e.g., Mastercard).
- Consider it a one-time strategy for a sign-up bonus, not a long-term plan.
Managing Cash Flow or Avoiding Late Payments
If you’re facing a temporary cash flow shortage and risk missing your mortgage due date, using a credit card can be a short-term solution. Paying with a card can help you avoid a late payment, which could result in a costly late fee and a negative mark on your credit report. This gives you a grace period until your credit card bill is due.
This approach is only viable as a one-time fix. For example, if your mortgage is due on the 10th but you don’t get paid until the 15th, you could charge the payment and then pay off the card as soon as you receive your paycheck. The fee from the payment service might be less than your lender’s late fee.
However, if you find yourself in this situation month after month, it’s a sign of a larger financial issue. Relying on a credit card to cover your mortgage regularly will lead to a cycle of debt. In cases of ongoing financial hardship, you should look into more sustainable solutions like mortgage forbearance or a personal loan.
Major Risks and Drawbacks to Consider
The potential downsides of paying your mortgage with a credit card are significant and can have long-lasting consequences. The most immediate risk is accumulating high-interest credit card debt. If you can’t pay your credit card balance in full, the interest charges will quickly negate any rewards you might have earned.
Another major drawback is the impact on your credit score. Charging such a large payment can cause your credit utilization ratio to spike, which can lower your score. Between costly fees, high interest rates, and a potential hit to your credit, the risks often outweigh the benefits.
High Interest Rates and Mounting Debt
The number one risk of this payment strategy is falling into a cycle of high-interest debt. The average credit card interest rate is over 20%, which is substantially higher than any mortgage rate. If you carry a balance after charging your mortgage payment, you’re essentially swapping a low-interest debt for a high-interest one.
This can quickly become unmanageable. The interest charges on a large credit card balance can add hundreds of dollars to your monthly expenses, making it harder to pay off and increasing your risk of financial hardship. What may start as a simple way to earn rewards can lead to a debt spiral that’s difficult to escape.
This is why it’s critical to only consider this option if you have the cash on hand to pay off the credit card bill immediately. Otherwise, the long-term cost of the interest charges will far exceed any short-term benefit you might have gained.
Effects on Your Credit Score and Credit Utilization
Your credit utilization ratio—the amount of credit you’re using compared to your total available credit—is a major factor in determining your credit score, making up 30% of your FICO score. Financial experts recommend keeping this ratio below 30% for a healthy score.
When you charge a large expense like a mortgage payment to your credit card, your credit utilization can skyrocket. For example, charging a $2,500 mortgage payment on a card with a $10,000 credit limit instantly uses 25% of your available credit. This high credit utilization can cause a temporary but significant drop in your credit score.
While your score should recover once you pay the balance down, a lower score can impact your ability to qualify for new loans or credit cards. If you’re planning to apply for any new credit soon, it’s best to avoid any activity that could negatively affect your credit score, including this payment method.
Alternatives to Using a Credit Card for Mortgage Payments
If you’re struggling to make your mortgage payment, there are much safer and more sustainable alternatives than using a credit card. Instead of turning to high-interest debt, it’s better to address the root of the problem. Your mortgage lender may offer programs to help you through a tough financial situation.
Exploring options like refinancing your loan, requesting a loan modification, or simply setting up automatic bank payments can provide the stability you need without the risks associated with credit cards. These methods are designed to be long-term solutions for managing your mortgage responsibly.
Refinancing or Loan Modification Options
If high monthly payments are straining your budget, refinancing your mortgage could be a great option. This involves replacing your current mortgage with a new one, ideally with a lower interest rate or a longer repayment term, which can lower your monthly payment. It’s a proactive way to make your mortgage more affordable.
Another option is to request a loan modification from your mortgage lender. This doesn’t create a new loan but instead changes the terms of your existing one. Your lender might agree to temporarily or permanently lower your interest rate, extend the loan term, or switch you from an adjustable-rate to a fixed-rate mortgage.
If you are facing financial hardship, you could also ask your lender about mortgage forbearance, which allows you to temporarily pause or reduce your payments for a specific period. Contacting your lender to discuss these options is always the best first step.
Setting Up Automatic Bank Payments and Other Safe Methods
For routine mortgage payments, the safest and simplest methods don’t involve a credit card at all. Setting up automatic payments directly from your bank account is the most reliable way to ensure your payment is always on time. This method is free, convenient, and eliminates the risk of human error.
Most mortgage companies offer several straightforward payment options that are both secure and cost-effective. You don’t have to worry about extra fees or negative impacts on your credit score, giving you peace of mind.
Here are some of the best safe payment options:
- Automatic Bank Payments (ACH): Set up recurring payments from your checking or savings account.
- One-Time Online Payment: Use your bank account and routing numbers to make a payment through your lender’s online portal.
- Payment by Mail: Send a traditional check or money order to your mortgage company.
- Payment by Phone: Call your lender and provide your bank account information to make a payment over the phone.
Conclusion
In summary, while it is technically possible to pay your mortgage with a credit card, it’s essential to weigh the pros and cons carefully. From the convenience of managing cash flow and gathering rewards points to the potential pitfalls of high fees and increased debt, there’s much to consider. Always check your lender’s policies and explore alternative payment methods to find what works best for your financial situation. Being informed about these factors can help you make prudent decisions. If you still have questions or need personalized advice, don’t hesitate to reach out for a consultation!
Frequently Asked Questions
Which third-party payment platforms can I use to pay my mortgage with a credit card?
Plastiq is one of the most well-known third-party payment services that lets you use a credit card for your mortgage payment. These platforms charge your card and then send the money to your lender for a fee, but they may have restrictions on which card issuers (like Mastercard or Discover) they accept for mortgage payments.
How might paying my mortgage with a credit card affect my credit score?
Charging a large mortgage payment can significantly increase your credit utilization ratio, which is the percentage of available credit you are using. A high credit utilization ratio can lower your credit score. Your score should rebound after you pay down the credit card balance, but the temporary dip can be risky if you’re applying for new credit.
Are there situations when paying your mortgage with a credit card makes sense?
It can make sense in two very specific scenarios: to meet the spending requirement for a valuable new credit card welcome bonus, or to avoid a late payment during a temporary cash flow crunch. In both cases, you must be able to pay the credit card balance in full before interest accrues.