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Should you pay your mortgage with a credit card?

Mediafeed logo Mediafeed 10/9/2018 Patrick Howard
a man and woman sitting next to a laptop: happy couple paying their mortgage© Wavebreakmedia happy couple paying their mortgage

When you pay your mortgage, your monthly payments are likely being directly withdrawn from your checking or savings account or you’re issuing your lender a check. You may also be able to pay with your credit card for a fee using a third-party service.

Credit card mortgage payments may sound like a good idea, as the spend potential with mortgage payments is so high that it makes it easier for card-holders to meet minimum spending requirements for signup bonuses and travel rewards. However, no mortgage lenders will let you repay your mortgage with your credit card directly. While there are third-party services available, like Plastiq, that  you can charge your mortgage payment to in exchange for cutting your lender a check, be prepared to pay a sizable transaction fee. (Not sure how this would affect your finances? You probably need a budget — here's an easy budgeting spreadsheet to get you started.)

Paying your lender with a credit card directly

As we said, you can't pay your mortgage company with a credit card, as the practice of paying down one form of debt (your mortgage) with another form of debt (your credit card) is generally viewed as risky and unsustainable. 

However, even if you could pay your mortgage with a credit card, it wouldn’t be the best idea. Credit card interest rates are significantly higher than mortgage interest rates, and you still need to pay both of these bills (mortgage and credit card) on a regular basis. 

Plus, credit card networks have their own rules against using debt to pay down other debt. Mastercard is the only card network that allows for both direct debit card and credit card mortgage payments; Visa lets lenders accept it’s debit cards and prepaid cards; and American Express and Discover don’t let you put any kind of mortgage debt on their cards.

Paying your lender through a third-party company

A common way to workaround your card lender’s rules against paying for your house with a credit card is to instead go through a third-party payment service that can process your payment and pay the mortgage company itself.

One such company, Plastiq, allows credit card mortgage payments if you have a Discover or Mastercard credit card. The caveat is they charge you a 2.5% fee for every transaction. As we discussed earlier, those fees are a hefty price to pay on top of your expensive monthly housing payment.

But if you’re savvy at churning credit cards and can’t resist that “minimum spend” reward (things which aren't advised, by the way), you may find the perks outweigh the added fees you’ll be paying. 

2 main reasons people consider using a credit card

People may repay their mortgage on a credit card to allow themselves added flexibility while they gather more cash, but it’s also popular amongst people who flip, or “churn”, credit cards once they meet their minimum spend requirements and reap their rewards. However, churning on mortgage spend still isn’t a very good idea.

  1. Rewards: In terms of recurring payments, mortgages may be the Holy Grail of credit card spend. Payments are typically high, and they’re monthly. If your card network gives you 90 days to hit your $5,000 minimum-spend signup bonus, and your monthly mortgage is $2,500, you’re meeting your minimum-spend in two payments. However, because most point earnings are between 1% and 2% of payments, and your processing fee with Plastiq is 2.5%, you’d actually be losing points. The only way the added monthly fee may be worthwhile is if the signup reward was, say, a $500 gift card to a store you really liked, but even then you’d still be losing some money on the reward.
  2. Financial flexibility: If you need a few more days to gather some cash to make a mortgage payment and you need a little breathing room, using a credit card is an option. The strategy here would be to pay with your card on your mortgage due date, float the credit card bill until payday, and pay the balance before you’re charged interest by your network. The risk here is that if you aren’t able to pay off the balance of the card by the end of the month or whenever your credit card balance needs to be paid off, you’ll end up paying interest on your mortgage payment on top of the initial interchange fee. Considering you’re already short on cash to begin with, that's one debt spiral you may want to avoid at all costs.

Why using a credit card for mortgage payments is a bad idea

Even if you go through a company like Plastiq to handle the legwork, it still doesn’t make much sense to pay your mortgage with a credit card. It has the potential to gravely affect your credit score and accrue unwanted interest and fees that you simply don’t have to worry about when you cut the lender a check yourself. Here are three big impacts using plastic to pay your mortgage has.

  1. You'll get hit with interest charges: You’re leaving open the possibility of entering an interest conundrum. Carrying a balance on your credit card means paying interest in addition to the fee you’re charged per mortgage transaction. With the average credit card interest rate hovering between 16% and 20%, failing to pay off a $1,500 balance would mean an extra $21.60 on top of your payment processing fee. Plus, some credit card companies may consider payments to services like Plastiq as “cash-like transactions,” or a cash advance, which are a bad idea unless you pay off your credit card the day you make the payment. For example, Visa charges you interest from the day you make the advance and every day after that until the debt is fully paid off. Here's how minimum payments keep you stuck in debt (and what to do about it)
  2. You'll hurt your credit utilization: One of the overriding factors that determines your credit score is your credit utilization ratio.  This measures the balance you have on your card versus the maximum amount you’re allowed to spend, or your limit. The general rule of thumb is to keep your utilization score below 30%. With mortgage payments being so high, it's a risky transaction to make for a card that already carries a balance. For example, say your card’s limit is $5,000 and you charge a $2,000 mortgage payment to your card, you’ve jumped your credit utilization up 40% in just one payment. Wondering why this matters so much? Here are eight reasons you need to pay attention to your credit score
  3. You run the risk of late payments: Ultimately, when you use the third-party payment method, you’re counting on a separate entity to follow through and get a check to your lender by the payment date. If your check isn’t delivered on time, you’ll have to pay a late payment fee. To avoid any potential late fees, be sure to communicate with the third-party company and pay them well in advance of the mortgage due date.

Want more insights on paying off your mortgage? Here's one thing you can do to help you save serious money on your mortgage.

This article originally appeared on Policygenius and was syndicated by MediaFeed.org

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