There are two main reasons why people consider paying their mortgage with a credit card: either to earn credit card rewards or because they're struggling to afford the mortgage payment. But while it may seem like a convenient option, the ability to pay your mortgage with a credit card depends on several factors, including the policies of your credit card issuer, mortgage lender, and the credit card network. And even if you can, it's important to carefully consider the potential risks and drawbacks.
You can't use a credit card directly
First things first: Most mortgage lenders do not directly accept credit cards as a payment method for monthly mortgage payments. This is because there are processing fees of around 3% that the lender would have to pay to the card issuer, making it uneconomical.
Third-party bill payment providers, like Plastiq, allow you to pay your mortgage using a credit card, but they charge convenience fees of around 2.5%-3.5% of the total payment amount. This fee will most likely negate any rewards or bonus points you may earn.
Getting a cash advance from your credit card and using it to pay your mortgage is another option. However, cash advances typically come with upfront fees and higher interest rates than normal purchases, making it an expensive option.
The interest rate is most likely higher on a credit card
If you're unable to pay off the mortgage payment in full when your credit card statement is due, you'll be subject to high interest rates, which can quickly undo any rewards or points you've earned. Not to mention, putting a large mortgage payment on your credit card can significantly increase your credit utilization ratio (the amount of credit you're using compared to your total credit limit), which can negatively impact your credit score.
If you're struggling to afford your mortgage payment, putting it on a credit card may only exacerbate the problem by adding to your overall debt load and making it more difficult to keep up with payments.
When it makes sense
Paying your mortgage by credit card may make sense in limited situations:
To earn a huge sign-up bonus or equivalent in points by meeting a card's minimum spending requirement
If you're struggling with cash flow one month and need to pay the mortgage before your next paycheck
To take advantage of an extended 0% APR period by converting mortgage payments to that low interest rate via balance transfer or balance transfer checks
However, in these cases, you must have a plan to pay off the credit card balance quickly to avoid costly interest charges.
How to use your credit card to pay your mortgage (without a hefty fee)
For those looking to earn credit card rewards, paying your mortgage with a credit card can be an attractive option. After all, mortgage payments are typically one of the largest recurring expenses for homeowners, and the potential to earn rewards points or cash back on such a substantial payment could be lucrative. If you're determined to pay your mortgage with a credit card and want to avoid fees, there are a few potential strategies to consider:
Use a credit card that offers a 0% introductory APR on purchases: Some credit cards offer a 0% introductory APR on purchases for a limited time (typically 12-18 months). If you can pay off the mortgage payment before the introductory period ends, you may be able to avoid interest charges.
Use a third-party service: Like I mentioned above, there are third-party services, such as Plastiq, that allow you to pay your mortgage with a credit card for a fee. While these services charge a fee (typically around 2.5%), it may be lower than the convenience fee charged by your mortgage lender.
Negotiate with your mortgage lender: Some mortgage lenders may be willing to waive or reduce the convenience fee for credit card payments, especially if you have a good payment history or a long-standing relationship with the lender.
The bottom line
The biggest risk is going into excessive debt if you cannot pay off the credit card bill in full each month. Mortgage payments are large, recurring expenses that can spiral into unmanageable debt if paid by credit card long-term. Interest charges on revolving credit card balances are also extremely high compared to mortgage interest rates.
In general, avoid paying your mortgage with a credit card unless you have a coherent, short-term strategy and plan to aggressively pay off the card balance. Otherwise, the costs and risks tend to outweigh any potential rewards or cent point value for most homeowners.