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Nowadays, most of us pay for just about everything with a credit card, and it often makes sense. But can you pay your mortgage with a credit card?
If you’re thinking about paying your mortgage with a credit card, the real question you need to ask isn’t whether you can, but whether you should. Let’s talk about why you might want to pay your home loan with a credit card, how you can do it, the risks and some common alternatives.
Reasons You Might Pay a Mortgage With a Credit Card
We’ve compiled a few reasons why someone might be tempted to use their credit card to pay their mortgage and whether it’s worth it. (Spoiler: It usually isn’t!)
To rack up credit card rewards
There are two main types of credit card rewards: the sign-up bonus and continual rewards.
Sometimes, credit card offers let you earn extra cash back or bonus points if you meet the spending requirement. For example, with a welcome bonus, you might get a $200 statement credit for spending $2,500 within the first 3 months of getting the card. With continual rewards, you might get 2% – 3% cash back with each purchase you make.
Since a mortgage payment is usually higher than your average purchase, using a credit card to pay your mortgage can help you capitalize on your credit card benefits, like racking up rewards points.
To dodge a late mortgage payment
If you’re late on your mortgage payment, your lender might impose a fee of 5% or 6% of your monthly payment. Even if you have to pay a processing fee to make your mortgage with a credit card, it might be worthwhile to avoid the late fee your lender might charge – not to mention help you stay in the lender’s good graces.
To avoid foreclosure
The very thought of losing your home is scary. And we completely understand why you might be tempted to make your mortgage payment with a credit card if it means keeping a roof over your head. But trust us, you’ve got other options.
Risks of Paying a Mortgage With a Credit Card
Paying a mortgage with a credit card isn’t as simple as tapping or swiping to pay at your local store. Some risks of paying a mortgage with a credit card include:
- Additional fees and interest: Credit cards often charge interest or fees, which can add up quickly and make your mortgage payment more expensive than if you paid using an online transfer or check.
- Complicated processes: Usually, lenders don’t make it easy to pay your mortgage with a credit card So you can expect to run into various obstacles and red tape along the way.
- Potentially worse financial situation: The rewards you might earn using a credit card to make a mortgage payment will probably be outweighed by card fees and interest rates. Even if you’re successful in paying your mortgage with a credit card, doing so could put you in a worse financial situation, leaving you more vulnerable to foreclosure.
- Your credit score might suffer: Using your credit card to pay a mortgage could negatively impact your credit score. Before using a card to pay your mortgage, make sure you don’t overextend your credit utilization ratio, which can hurt your credit.
How To Pay Your Mortgage With a Credit Card
If you’ve weighed the pros and cons and still want to explore using a credit card to pay your mortgage, here are a few methods you can use:
Third-party payment service
Some companies, like Plastiq, let you use a credit card to pay for almost anything – including a mortgage.
These third-party services take your credit card payment and then send a check to your lender. Though simple enough, there are some downsides.
Most services charge a processing fee of 1.5% – 3.5%. You might be able to find a referral code to save on the transaction fee, but you can only use the discount on your first transaction. There won’t be any money-saving referrals to help you if you plan to use this method in the future.
Keep in mind that some services only accept certain types of credit cards, which could limit your options.
Buy a money order
Like a check, a money order is a form of paper payment. You can buy one with cash, a traveler’s check or debit card. After buying a money order, you can either deposit it at your bank or send it directly to your lender.
However, many money order providers also won’t accept payment with a credit card. Money orders have a $1,000 limit, and you might be charged a fee for each money order you buy.
Get a cash advance
A cash advance is a service most credit card issuers provide, allowing you to withdraw cash up to your credit limit at an ATM or over-the-counter at a bank. You could take out an advance on your card and then deposit the money into your checking account or buy a money order or cashier’s check to pay your mortgage.
You could also deposit your cash advance and pay by check or through an online transfer.
However, the cash advance APR (the interest and fees charged on the money you’ve withdrawn) is usually higher than other ways of borrowing money, which could make this method significantly more expensive. The advance gets added to your credit card balance ASAP – and it’ll start accruing interest until it’s paid off.
Obstacles to Paying Your Mortgage with a Credit Card
Most mortgage lenders won’t accept credit card payments because they don’t want to pay the fees, and it might make you more likely to default on your loan. Simply put, your mortgage company doesn’t want you to pay for one debt using another debt.
Another obstacle to paying your mortgage with a credit card is the potential impact on your credit score. For example, if you have a $5,000 credit limit on your Visa or Mastercard and you put $4,000 toward your mortgage, it might hurt your credit.
Alternatives To Help You Make Your Mortgage Payments
If you’re struggling to make your mortgage payments, getting help from a relief or assistance program – or even directly from your lender – might offer a solution. Some of your options include:
Reaching out to your mortgage lender before you miss a payment
If you’re having a hard time making your monthly mortgage payments, talk to your lender. They might be able to work with you and potentially offer to lower monthly payments temporarily. Remember, your lender doesn’t want you to default on your mortgage. So finding a solution that can help you will benefit them, too.
Applying for mortgage forbearance
Try talking to your mortgage servicer about applying for mortgage forbearance (a temporary pause on monthly mortgage payments) until you can regain your financial footing.
Getting guidance from a housing counselor
A housing counselor offers advice and options for people who are struggling to pay their mortgage. If you’re interested in this option, use the Consumer Financial Protection Bureau’s housing counselor tool to find a counselor near you.
Making a mortgage payment with a credit card could cost more than what you owe that month.
If your current financial situation makes paying with a credit card feasible, do your research. Make sure you know what fees you’ll have to pay and the steps you’ll have to take to avoid inflicting long-term damage on your financial health.
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