Should I pay my mortgage with a credit card?

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While it’s possible to pay your mortgage with a credit card, the process can be tricky, and you’ll likely encounter some obstacles. For starters, mortgage lenders typically don’t accept credit cards for payments because they don’t want to pay the transaction fees. It’s also difficult to find a lender who accepts debt-for-debt payments, such as using your credit card to pay for your mortgage.

Another hurdle is that of the major credit card networks—Visa, Mastercard, American Express and Discover—only Mastercard allows you to charge mortgage payments to your account. In addition, your credit card issuer may have rules preventing mortgage payments from being charged to your credit card account.

In the face of these roadblocks, how do you pay your mortgage with a credit card? Read on to learn more about your options for using a card to cover your mortgage and consider the pros and cons to decide whether it’s the right move for you.

How to pay your mortgage with a credit card

You may be able to pay your mortgage company directly, but your credit card company, the card network, and your mortgage lender must all allow credit card payments for this purpose. You’ll need to investigate with your institutions to see if this is possible (keep in mind, there’s a good chance it isn’t).

Another strategy is to use a third-party payment service like Plastiq. Currently, this service is only available through Mastercard and Discover, and you’ll be subject to a hefty fee of  2.85 percent of your mortgage payment amount.

Since the third-party company sends your mortgage company the funds via check, wire transfer or ACH transfer, you don’t need approval from your lender. Keep in mind, though, it could take up to eight business days for your mortgage company to get their payment, so you’ll need to plan ahead if you choose this payment route.

Reasons you might pay your mortgage with a credit card

Sure, you can pay for your mortgage with a credit card, but is that a wise move? There are a few reasons you might want to pay your mortgage with a credit card. Let’s review the main reasons to consider this path, along with some related factors to consider:

Earning credit card rewards

A mortgage payment is a big lump sum, and if you’re interested in earning rewards it’s a tempting figure to want to cash in on. Before utilizing this payment method, weigh the transaction fees against any rewards you might earn.

For instance, if you get 2 percent cash back on the transaction, you’d earn $40 by paying a $2,000 mortgage payment. But, if you use Plastiq and have to pay its attendant 2.85 percent transaction fee, in this case $57, you’d actually be down $17. In this case, the cost outweighs the benefit, so it’s not worth it.

You also need to be sure you can pay your bill in full at the end of the month. Paying added credit card interest on your mortgage payment will quickly wipe out any reward benefits.

Meeting a sign-up bonus spend requirement

Under the right circumstances, it may make sense to pay your mortgage with a credit card to reach the minimum spend requirement to garner a valuable sign-up bonus.

For example, say you want to take advantage of the welcome bonus for the Southwest Rapid Rewards® Priority Credit Card. Under Southwest’s promotion, you can earn 40,000 points after you spend $1,000 on purchases in the first 3 months. Plus, earn 3X points on dining, including takeout and eligible delivery services, for the first year. By paying your $2,000 mortgage using Plastiq, you could earn the bonus (worth approximately $600 (based on TPG’s 1.5 cent point value) minus Plastiq’s 2.85% transaction fee ($57).

Just like with earning credit card rewards, charging your mortgage payment to your credit card for a sign up bonus only works if you can pay off your credit card bill in full each month. Otherwise, high-interest charges will quickly overtake the value of your rewards and potentially lead to mounting credit card debt.

Avoiding a late payment or delaying foreclosure

If you’re facing a temporary cash-flow problem, you may be looking to avoid a late payment fee by charging the monthly mortgage bill to your credit card. As a one-time occurrence, charging your payment may be the best option, but only if you can pay the total credit card balance before the due date to avoid paying interest charges and falling deeper into debt.

You’d still have to pay the transaction fee, but it could be worth it if it prevents you from receiving a negative late payment mark on your credit report. However, if you’re charging your mortgage to your card without a plan to pay it off or are facing the same issue every month, you may find yourself in an ever-worsening cycle of debt.

Why you shouldn’t pay your mortgage loan with a credit card

As with many financial practices, it’s worthwhile to do a benefit-risk assessment. Do the benefits outweigh the risks or vice-versa? To help with this exercise, let’s examine the risks of paying your mortgage with a credit card.

Risk of a debt cycle

If you can’t pay your credit card bill in full and avoid interest charges, you run the very real risk of falling further into debt. The current average credit card interest rate hovers around 16 percent. The long-term expense of paying higher interest rates can add up quickly and negate any benefits you gain by charging your mortgage loan payment.

The longer you go without repaying the charge for your mortgage payment, the harder it becomes to pay your credit issuer. What’s more, getting caught in a cycle of debt leaves you vulnerable to payday loan companies who lure many consumers in this situation into taking short-term loans at exorbitant interest rates.

Costly fees

If you use a third-party payment company, those transaction fees will add up over time. For example, if you pay your monthly $2,000 mortgage payments through Plastiq, you’d be on the hook for a $57 fee each time. If this is a long term plan, that’s an additional $684 for the year. And if you’re unable to pay your credit card bill on time, you’re likely to incur late fees from your card issuer as well.

Impact to credit

Paying your mortgage with a credit card will likely use up a significant portion of your credit limit and increase your credit utilization ratio, the percentage of available credit you are using. Your credit utilization ratio makes up 30 percent of your credit score, and it’s generally recommended your debt percentage should remain below 30 percent.

Alternatives to paying your mortgage with a credit card

Mortgage forbearance

If you’re considering charging your mortgage loan payment to avoid a late fee or to prevent foreclosure, you may be better off requesting mortgage forbearance instead. This is an agreement with your lender to temporarily pause your payments for a specific period.

Under the CARES Act, you may be eligible for a pause of up to twelve months in payments for Veterans Affairs, Fannie Mae, Federal Housing Administration loans and other federally backed loans. Many private lenders are also offering forbearance options. Before you miss a payment, contact your lender to request a forbearance or negotiate a new repayment schedule.

Financial counseling

If you’re going through a rough patch financially, it’s essential to be proactive. We recommend contacting the National Foundation for Credit Counseling, which can help you find a qualified credit counselor near you. They’ll be able to help you figure out the best path forward for your specific situation.

Alternatives to avoid

You should avoid taking out a payday loan that charges massive interest rates. When calculated as an annual percentage rate (APR)—the same calculation used for credit cards, mortgages and other loans—the APR for payday loans may be nearly 400 percent. Interest rates of this sort are counter-productive to any effort to escape financial hardship.

Along the same lines, credit card companies also charge significantly higher interest rates for cash advances, making them a poor option for making your mortgage payment for the same reasons as payday loans.

The bottom line

There’s a reason most mortgage lenders, credit card issuers and card networks don’t allow you to charge a mortgage payment: Taking on one debt to pay another is a recipe for disaster. So unless you have the money in your bank account to make a full payment and avoid paying interest, it’s probably best not to charge your loan payment.

If charging your mortgage payment is a one-off and you can comfortably handle the repayment at the end of the month, just make sure the benefits you’ll receive outweigh the fees you’ll end up paying.