If you own your home, your mortgage payment is likely your biggest monthly expense. And if it isn’t paid on time, you face a number of late fees and penalties. If you’re facing short-term financial difficulty, a credit card could help you meet that mortgage due date, while offering you additional time to pay the credit card balance. You could also score cash-back rewards by paying this way.
But covering your mortgage with a credit card is actually a pretty complicated financial maneuver. And, in many cases, it’s more expensive than paying a late fee. Many mortgage lenders simply don’t accept credit card payments because of the transaction fees, and if they do, they charge a processing fee.
That said, while it’s possible to pay your mortgage with a credit card, the two primary methods -- using a third-party processor and converting gift cards to money orders -- are far from ideal. Below, we explore how to pay your mortgage with a credit card and whether it’s worth the hassle.
Using a third-party credit service to pay your mortgage
If your mortgage servicer won’t accept a credit card payment, there are services that can help you get around that. Companies like Plastiq will charge your credit card for the mortgage amount and then send your servicer the money. But that work-around comes with a cost, and you’ll pay a fee based on the amount you’re sending your lender.
Plastiq, for example, charges a 2.9% processing fee and accepts only Discover or Mastercard. If you’re using a credit card to pay your mortgage on time, you’ll want to crunch the math to see whether the processing fee is lower than the late fee. If earning cash-back rewards is your motivation, you’ll also need to calculate the value of the points or miles versus the processing fee.
For a $1,500 mortgage payment, for example, Plastiq would charge you roughly $43.50 in fees. If you’re only earning 2% cash back with your credit card, that’s a net loss.
The gift card method
Another way to earn rewards when paying your mortgage is to use your credit card to purchase Visa or Mastercard gift cards. (We recommend buying PIN-enabled gift cards, which offer better security in case they’re lost or stolen.) You can then use these gift cards to buy a money order to pay your mortgage.
Tedious? Yes. But if you’re committed to earning rewards for your mortgage payments, it’s worth considering. You can even purchase gift cards at a retailer that offers bigger rewards -- like a grocery store.
Money orders typically cost about $1 plus postage and are usually capped at $1,000. If your mortgage payment is greater than that, you’ll need to purchase multiple money orders, which can further complicate things. If your mortgage is serviced by a bank with a physical branch, you may be able to buy money orders there and then pay your mortgage in one trip.
While you’ll save on processing fees with the gift card method, it’s sort of a pain in the neck. And if you need to mail your payment, bear in mind that it could take several days for the payment to arrive, so you’ll want to submit it early.
Advantages of paying your mortgage with a credit card
Using a credit card to pay your mortgage could help you avoid late fees and earn free flights and other lucrative rewards. But there are other advantages to paying your mortgage with a credit card.
- It can help with a cash-flow issue: If you’re paid irregularly or are waiting on a paycheck to pay your mortgage, using a credit card might help. Just be sure you’ll have the money to pay off your balance each month -- not doing so could create an even bigger problem with interest and late fees -- essentially negating the rewards you may have earned by charging your mortgage.
- It could simplify your payment: Automating your mortgage through a third-party processor and paying a single bill each month for your household expenses could save you time and effort. (If you’re looking just to automate your monthly mortgage payment, many lenders let you do that, too.)
- It could make expenses easier to track: If you manage to make all of your home-related expenses with one card, you can run reports at any time to see your spending by category.
Risks of paying your mortgage with a credit card
While landing big bonus points from a big credit card purchase may sound enticing, trying to pay your mortgage with a credit card is often more trouble than it’s worth and could create more problems than it solves. Here are some of the risks and drawbacks to consider:
- It’s not free: Both third-party processors and money orders have fees, though third-party processors cost a bit more. You’ll also need to be sure to pay your credit card in full each month to avoid late fees and interest charges.
- It’s inconvenient: Each method introduces additional steps to paying your mortgage. Third-party processors require paying through their sites, but you should also check your mortgage payment site to make sure that the payment goes through on time. The gift card method involves buying gift cards and money orders, and possibly mailing in your payment each month.
- It can lead to debt: Whenever you use a credit card, you’re increasing your risk of carrying debt. If you’re not diligent about making payments in full every month, your debt could snowball.
- It could damage your credit: Charging your mortgage to a credit card can cause your debt utilization to spike. Your debt utilization ratio -- how much of the total credit available to you you’re using -- is one of the biggest factors affecting your credit score. Using too much of your available credit could lower your score and create issues if you’re planning on applying for other loans or credit cards. You also risk hurting your credit if you miss a payment or do not pay your balance in full every month.
The bottom line
In most cases, paying your mortgage with a credit card is more hassle than it’s worth. Third-party payment processors charge nearly 3% in fees every month, so unless your late fee is much higher or you’re earning 4% cash back or more, it’s not worth it. While the gift card method is more affordable, it requires multiple steps and time investment. And unless you pay off your credit card balance in full each month you’ll be hit with interest charges that are likely to wipe out any rewards you’ve earned.
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