Can You Make Mortgage Payments with a Credit Card?
For homeowners who face financial challenges or want to take advantage of rewards points, the idea of making mortgage payments with a credit card may seem appealing. But can it actually be done? And is it a smart choice? In this article, we’ll explore whether it’s possible to make mortgage payments with a credit card, the potential benefits, and the risks involved.
1. Is It Possible to Pay Your Mortgage with a Credit Card?
In general, most mortgage lenders don’t accept credit card payments directly. This is because mortgage payments are typically made through checking accounts, and credit card payments involve different processing systems. However, there are indirect methods that can allow you to use a credit card for mortgage payments:
Third-Party Payment Services: Some third-party services, such as Plastiq, allow you to pay a variety of bills, including mortgage payments, using a credit card. You simply input your mortgage details into the payment platform, and they process the payment for you, charging a fee for the service (usually 2.5%–3% of the transaction).
Cash Advances: You could take a cash advance from your credit card and use the funds to pay your mortgage, but this is rarely a good option due to high fees and interest rates.
Despite these options, it’s important to understand the potential drawbacks and costs before attempting this method.
2. Potential Benefits of Using a Credit Card to Pay Your Mortgage
Though it comes with several challenges and risks, there are a few scenarios where paying your mortgage with a credit card could offer benefits:
Earn Credit Card Rewards: Many credit cards offer rewards like cashback, points, or miles for each dollar spent. If your card offers a substantial reward rate, paying your mortgage with a credit card could earn you significant rewards. However, keep in mind that the fees you pay for using a service like Plastiq may offset any rewards earned.
Temporary Cash Flow Solution: If you face a temporary cash flow issue and need a few extra days to come up with funds, using a credit card to make a mortgage payment could give you some breathing room. You can pay off the credit card balance before it accrues interest.
Build Credit History: Regularly using your credit card and paying it off in full can help build your credit score. If you can make your mortgage payment on time and pay off your credit card balance quickly, it could have a positive impact on your credit profile.
3. Risks of Using a Credit Card for Mortgage Payments
While there are some potential advantages, there are also significant risks to consider before using a credit card for mortgage payments:
High Fees: Payment services like Plastiq charge a fee for using a credit card. This fee typically ranges from 2.5% to 3%, which could add up significantly on a large mortgage. For example, if your mortgage payment is $2,000, the service fee could be $60–$80.
Interest Rates: If you don’t pay off your credit card balance in full before the due date, you'll be charged high-interest rates—often 15% to 25% or more. Credit card interest compounds quickly, and carrying a balance could result in paying much more than you originally owed.
Impact on Credit Utilization: Using your credit card to pay your mortgage will increase your credit utilization rate (the percentage of your available credit that you’re using). If your credit utilization rate becomes too high, it can negatively impact your credit score.
Debt Accumulation: Relying on a credit card to cover essential payments like your mortgage could lead to accumulating debt. If you are unable to repay the balance, this could result in long-term financial strain, especially when factoring in interest and fees.
4. Alternatives to Paying Your Mortgage with a Credit Card
If you’re looking for ways to improve your cash flow or manage your mortgage payment, consider the following alternatives:
Refinance Your Mortgage: If your financial situation has changed, refinancing your mortgage could lower your monthly payments or extend your loan term, making it easier to manage.
Mortgage Payment Deferral or Forbearance: If you're facing financial hardship, reach out to your lender to discuss options like mortgage deferral or forbearance. Many lenders offer temporary relief for homeowners experiencing difficulties.
Personal Loans: Taking out a personal loan with a lower interest rate than a credit card could help you cover your mortgage without incurring hefty fees.
Home Equity Line of Credit (HELOC): If you have built up equity in your home, a HELOC could provide a line of credit at a lower interest rate than a credit card, offering a more affordable way to manage payments.
5. When to Consider Using a Credit Card for Mortgage Payments
Using a credit card for your mortgage is generally not advisable unless you have a specific short-term reason to do so and can pay off the balance quickly. Here are a few instances where it might make sense:
Temporary Cash Flow Gap: If you’re waiting for a paycheck or other income and need to cover a payment urgently, using a credit card could be a short-term solution.
Strategic Use of Rewards: If you have a credit card with great rewards and can cover the fees with the rewards you earn, paying with a card might make sense. Just be sure to pay off the balance in full.
Avoiding Late Fees: If you’re at risk of missing a mortgage payment and incurring late fees or damaging your credit score, using a credit card for the payment may help you avoid those consequences—provided you pay it off promptly.
Conclusion
While it's possible to pay your mortgage with a credit card using third-party services, it’s generally not the most cost-effective solution due to high fees, interest rates, and the risk of accumulating debt. Before considering this option, evaluate other methods such as refinancing, mortgage forbearance, or personal loans. If you do choose to use a credit card, make sure you can pay off the balance in full before interest charges accrue to avoid further financial complications. Always weigh the pros and cons carefully to ensure that using a credit card for your mortgage is the right choice for your situation.
