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Paying Mortgage with a Credit Card: Is This a Smart Idea?

Homeowners have multiple options when making mortgage payments. They can pay over the phone using their preferred checking account, mail a check addressed to the lender or financial institution, use their debit card to make one-time payments or set up automatic monthly payments through online or mobile banking. The one common thing about these payment options is that people are using cash to pay for the home loan. 

You may be wondering if there are other ways of paying a mortgage without initially dipping into your savings. There is — and this involves reaching into your wallet and pulling out your credit card.

Can You Pay Mortgage with a Credit Card?

The answer is yes, but not directly. Many creditors, including mortgage lenders, do not accept credit cards to pay off debt. When they allow this, they’re essentially enabling individuals to trade one form of debt (usually low-interest and sometimes tax-deductible) for another. 

The good news is that you have a workaround for this situation. You can use a third-party processor to pay your mortgage with a credit card. 

One payment processing service provider you can turn to is Plastiq. This company lets users make home loan payments with a credit card for a 2.85 percent transaction fee. If your minimum monthly payment is $2,000, for instance, you’ll have to shell out $57 in fees.

Although this may be helpful if you’re in a tight financial bind, do note that these transactions can get expensive quickly. This is something you should consider when paying your mortgage with Plastiq.

Other than Plastiq, you could use money orders to pay your mortgage with your credit card. If you can purchase PIN-enabled gift cards in your location, you could buy them to obtain the money orders you need. You can get money orders in grocery stores and banks. 

Why Consider Paying Home Loans Using a Credit Card

Despite the transaction costs, some homeowners still choose to pay their mortgage with a credit card. A few of these valid reasons are the following:

Earn Rewards

Credit cards usually come in two forms of rewards: ongoing rewards and sign-up bonuses. An example of an ongoing rewards program is 1.5 percent cashback on every purchase you make. On the other hand, an example of a sign-up bonus is getting $200 cashback when you spend a minimum amount in your first few weeks or months as a cardholder.

Let’s say your minimum monthly home loan payment stands at $1,500. If you incur a 2.85 percent transaction fee, for instance, you’re losing $42.75. Still, you could make paying a mortgage with your credit card worth it when one of these scenarios occurs:

  • Your credit card issuer offers ongoing cashback (or the mile or point equivalent) of at least three percent on your mortgage payment. 
  • You earn a sign-up bonus that exceeds the processing or convenience fee.
  • Your credit card provider does not classify or treat Plastiq or other third-party payment processors as a cash advance. The fees for cash advances are quite high, typically at rates between 20 and 30 percent. 
  • You earn a credit card benefit that’s worth more than the transaction fee. A few examples include a free airline ticket and a complimentary one-night stay at a hotel.   

Earn Interest 

Some financial institutions provide an interest-free grace period for cardholders who don’t carry a credit card balance. Leveraging this grace period by storing your hard-earned money in your savings account (where it earns interest) until your credit card due may net you a few extra bucks. Pulling this off is possible, so long as you pay off your balance in full consistently and on time. 

Do note, though, that you need to earn enough interest to offset the transaction fee. A high-interest savings account that’s below 2.85 percent won’t do you any good.  

Avoid Late Payments

Mortgage payments are usually due on the first of each month. Some lenders, however, provide borrowers a grace period to make their payment. If you are unable to pay on the due date or during the grace period, your lender will slap you with a hefty late fee. 

If you need to “extend” the grace period but want to avoid the late charge and credit score damage, you could buy yourself some time by paying a mortgage with a credit card. Coming out ahead in this scenario is possible when the fee of your payment processor is lower than the late charge of your lender. Also, remember to pay off your credit card balance in full on or before the due date. 

How to Pay Your Mortgage with a Credit Card

Using a credit card to pay your mortgage isn’t rocket science, but you should consider reserve this strategy for special occasions, such as snagging a sweet sign-up bonus from the bank. 

Here are the steps to help you could pull this off properly, so you could enjoy the most bang for your buck:

  1. Choose a credit card that matches your goals and offers excellent sign-up bonuses or cashback rewards.
  2. Use your rewards credit card to pay your mortgage. You could use Plastiq or a similar payment processing provider.
  3. Pay your credit card bill in full on time every month. This way, the interest charges won’t cut into your rewards earnings. 

Risks of Paying Your Mortgage Using a Credit Card

Using your credit card to pay your mortgage does come with risks. A few pitfalls that you should keep in mind are the following:

Prepayment Penalties

Some homeowners want to save money by paying off their home loan well in advance. If you’re going to use your credit card to accumulate rewards and pay off your mortgage early, you may have to pay a prepayment penalty imposed by your mortgage lender. This strategy may not be worth it if the penalty fee is greater than the cashback you get from your credit card issuer.

High Interest on the Credit Card

According to Business Insider, the average interest rate for credit cards is 14.52 percent. This is higher than the average rate for a 30-year mortgage, which sits around three percent. Paying your mortgage with a credit card isn’t for you if you’re used to paying the minimum balance each month.

High Processing Fees

Payment processing providers can bump up their fees, which eats away the rewards points and miles you earn on a credit card. If you’re going to pay your mortgage with a credit card, tread carefully. Although the idea of racking up rewards points or cashback is incredibly appealing, you could hurt your credit score and budget if you don’t consistently pay your credit card bill in full every month.

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