Pros and Cons of Paying Mortgage with a Credit Card
11 MIN READ
Published July 25, 2023 | Updated August 11, 2023
Mortgage companies usually do not allow you to pay your mortgage with credit cards directly. You may be able to do so using a third-party payment service, but this may cost you fees, which can sometimes be more than any rewards you may earn on your credit card.
Paying a mortgage with a credit card is possible, but the process can be a little tricky, and there are obstacles along the way. Most lenders do not accept debt for making debt payments, such as using credit cards. Additionally, they do not allow this because of the transaction fees. Read on to learn more about the options available to pay your mortgage with a credit card, the factors that you need to consider, and the pros and cons before deciding if it’s the right decision for you.
Is It Possible to Pay Your Mortgage with a Credit Card?
Yes, it is possible to pay your mortgage with a credit card, but you may not be able to do it directly. Average processing fees charged by credit card companies are 1.3% to 3.5%, and mortgage lenders do not want to pay those fees. If borrowers dispute the transaction, there can be a chargeback, and lenders do not want to risk it.
You can use alternative payment methods and third-party payment companies to pay your mortgage through a credit card. Be mindful of the fees they charge because they can be higher than the rewards you may earn on your credit card.
List of Credit Cards that You Can Use to Pay Your Mortgage
There are three main ways of paying a mortgage with a credit card, each with its own fee, benefits, and drawbacks.
Plastiq is a third-party payment service that allows you to make mortgage payments if you have a Mastercard or Discover credit card. Currently, you can’t use Amex or Visa for this service. You can use this service to pay utilities, mortgage, and other bills in exchange for a 2.9% fee.
2. Prepaid Gift Cards
If your mortgage lender accepts payment through debit cards, you may be able to use your credit card to purchase a prepaid Discover, Amex, Mastercard, or Visa gift card. These gift cards can then be used to make mortgage payments. One thing to keep in mind is that most prepaid gift cards are capped at $1,000, so you may not be able to use one card to make the payment if you have a larger monthly mortgage payment. Additionally, you’ll typically have to pay $5 to $10 in fees on each gift card.
3. Money Orders
You can also purchase prepaid gift cards from your credit card and then use those to purchase money orders. Money orders can act like checks when making a mortgage payment. Check to see if you find a retailer that accepts prepaid gift cards for purchasing money orders. Retailers usually charge $1 for money orders worth $500. Factor in the additional time and money this will cost you.
Pros and Cons of Paying Your Mortgage with a Credit Card
While you may be tempted to use a credit card to pay your mortgage, it is important to be fully aware of the pros and cons of doing so.
- You may be able to earn more rewards on your credit cards.
- You may be able to earn the welcome bonus on your credit card.
- You can avoid late payments on your mortgage by using a credit card.
- You may be able to maximize the benefits offered by your credit card by making full use of it.
- You’ll need to put in extra effort and time to find the right workaround because mortgage lenders do not accept credit card payments directly.
- You may have to pay an additional fee, for example, 2.9%, when using Plastiq, which can be quite expensive.
- Relying on your credit card to pay your mortgage can lead to credit card debt if you’re not careful.
How to Pay Your Mortgage with a Credit Card
As discussed above, there are two main methods of paying your mortgage with a credit card- through an intermediary and by using a gift card or money method. Here’s a quick guide on how to use each method.
Using an Intermediary
Currently, Plastiq is the only third-party payment service through which you can pay your mortgage using a credit card. The process is easy and convenient. The only drawback here is that you’ll need to pay a 2.9% fee. Also, keep in mind that Plastiq only accepts Mastercard and Discover. Here’s how to use this service:
- Select a recipient you wish to send the payment to. This will be your mortgage lender in this instance.
- Enter an amount that you want to transfer.
- Select your delivery date.
- Select the fre4quency of the payment, for example, one-time payment or recurring payment.
- You’ll then be able to make the credit card payment to Plastiq.
- Once this is processed, Plastiq will send the payment to your mortgage provider.
Money Order/Gift Card
If your mortgage lender accepts money orders, this may be an option worth considering. Establishments like 7-Eleven and Western Union typically allow you to purchase money orders using a credit card. Visit a physical store of any of these retailers and purchase a money order. You can then hand it over to your mortgage lender or mail it to them.
Another option is to use your credit card to purchase a Mastercard or Visa gift card. Use this gift card to purchase a money order and follow the process listed above. Keep in mind that both of these options will involve fees.
Tips for Paying Your Mortgage with a Credit Card
Whether you should pay your mortgage with a credit card will depend on whether you gain any benefit from doing so. If you’re planning to use your credit card to earn rewards or if your card issuer offers cardholders a large sign-up bonus, it makes sense. Here are a few tips to make sure you can make the most of this decision:
- Calculate the rewards you’ll earn through your credit card against the fees you’ll pay. For example, if your mortgage payment is $1,500, and your processing fee is 2.9%, you’ll pay $43.50 in fees. Check to see if the rewards you’re earning are more than the fees you’re paying.
- If you have a minimum spending requirement to earn a large sign-up bonus for a credit card, charging it on your credit card once makes sense.
- Be sure to pay off your credit card debt at the end of each month. Carrying large balances will negate any benefits you may get by using your credit card for mortgage payments.
- Check your credit report and your credit utilization before you decide to move ahead with this option.
Using a Credit Card to Pay Your Mortgage for Points
Mortgage payments are large, and when you’re trying to earn rewards, it can be tempting to use your credit card. But before you do, consider if it makes sense for your particular situation. Weigh the card offers and rewards against the transaction fees.
For example, if you earn a 2% cash back on a transaction, you’ll earn $30 by paying a $1,500 mortgage payment. But you’ll be paying a 2.9% fee of $43.50 if you use Plastiq. In this case, it may not be worth it.
Paying your mortgage with a credit card makes more sense when you want to get a welcome bonus. Let’s say you have a credit card where you can earn 50,000 bonus points by spending $1,000 for three months on your credit card. If these points are worth $750 (considering a 1.5-cent value per point), it makes sense to use your credit card to make mortgage payments in this instance. Just be sure to pay off your balance each month in full. Otherwise, the higher interest rates on credit cards will quickly add up, making it difficult to get out of credit card debt.
Can You Pay Your Mortgage with a Credit Card Without Fees?
No. Every method that involves using your credit card to pay your mortgage loan involves some sort of fee. Whether you go through a third-party payment method, gift card, or money order, each method will require you to pay fees.
Factors to Consider When Paying Mortgage with a Credit Card
There are three main factors you need to consider when you are trying to decide whether you should use your credit card to pay your mortgage.
1. Fees Vs. Rewards
If you want to use a credit card to pay your mortgage for points, you’ll need to weigh the fees against the rewards. If you can manage to pay your mortgage every month through your credit card, you could be accumulating a lot of points. But you’ll also pay a fee each month. You’ll have to think whether the rewards you earn from this transaction are worth more than the fees you’ll pay.
2. Credit Card Interest Vs. Mortgage Interest
The current average mortgage interest rate is 7.14% for a 30-year fixed mortgage. This is much lower than the average credit card interest rate, which is currently 20.82%. If you’re thinking about using your credit card to pay your mortgage, you need to make sure that you’ll pay off the entire balance in full each month to avoid accruing interest fees on your credit card.
3. Credit Score
Consider the impact on your credit score. Your credit card comes with a pre-determined credit limit, which is the maximum amount you can spend on your card. For example, if your card has a credit limit of $3,000 and you are using it to make a mortgage payment of $1,500, your credit utilization ratio will be 50%. A higher credit utilization ratio can lower your credit score. Most personal finance experts recommend that you keep this ratio lower than 30%.
How to Pay Off Your Mortgage with a Credit Card
If you’re planning to pay off your mortgage with a credit card, you’re likely considering making a recurring payment through a third-party payment service each month. The process remains the same, but remember that since this isn’t a one-time transaction, you’ll incur a 2.9% fee each month.
Only go with this option if you’re absolutely sure that the benefits outweigh the expensive fees. You’ll also need to be very disciplined to make sure that you don’t accumulate a lot of debt in the process. Otherwise, you may have to consider a credit card debt relief program.
Paying Your Mortgage with a Credit Card for Faster Payment
If your primary motivation for paying your mortgage with a credit card is for faster payment, there may be better options for you. Most mortgage lenders today offer direct debit and autopay facilities, which are fast and convenient. Using third-party payment intermediaries, gift cards, and money orders will require extra steps, more effort, and time so it won’t be as fast as direct debit.
Paying Your Mortgage with a Credit Card and Your Credit Score
Mortgage payments are large, and using your credit card will take up a huge portion of your credit limit. This will bump up your credit utilization ratio, which is the total balance on your card in comparison to your credit limit. You want to keep this ratio below 30%. A higher credit utilization ratio can lower your score, which can be a challenge if you already have bad credit.
To minimize negative effects, request a credit limit increase from your card issuer to avoid going over your credit limit. A larger credit limit will also help you keep your credit utilization ratio lower.
Bottom Line: Should You Pay Your Mortgage with a Credit Card?
“Most mortgage companies won't allow this, and it is just not financially a good idea,” says Teresa Dodson, debt relief expert and founder of Greenbacks Consulting. “This is a good way to sink yourself deep into debt,” Dodson cautions.
In most cases, you should only pay your mortgage with a credit card if the fees you’ll be paying will be much lower than the credit card rewards you’re earning. You should also have enough cash in your account to clear your credit card balance in full each month to avoid late fees and interest charges. Also, there are many other easier ways to earn more rewards on your credit cards without additional fees, such as paying for daycare or health insurance.
One of the biggest risks of paying your mortgage with a credit card is the risk of credit card debt. If you already have over $10k in credit card debt, get in touch with TurboDebt for a free consultation. Our team will help you find the best debt option for your individual needs.