Should You Use A Credit Card To Pay Your Mortgage?

The question isn’t can you use your credit card to pay your monthly mortgage bill, but should you. And the answer depends on why you want to in the first place. Do you want an easy way to collect rewards? Or are you trying to prevent foreclosure?

 

Either way, most lenders typically don’t allow credit card payments because of processing and transaction fees. They also don’t want you to go into more debt just to cover the cost of another. 

 

To find out if you should use your credit card to pay your mortgage, check out these tips from US News My Money.

 

How To Pay Your Home Loan With Your Credit Card

Although many lenders don’t accept credit cards, you can use third-party payment platforms like Plastiq (only available to Discover or Mastercard customers). Plastiq charges 2.85% to process your payment, which can be expensive. Not only that, it can take as many as eight business days before your lender receives the money, which is something to consider before using this service.

 

Why Use Your Credit Card To Pay Your Mortgage?

The costly processing fee may deter you from using your credit card to pay your mortgage. But if it doesn’t, here are four reasons why you would do it.

 

You Want To Earn Rewards

Paying your home loan with your credit card can mean tons of rewards. However, it would be best to consider several things (like Plastiq’s processing fee), so you know the benefits outweigh the costs.

 

Suppose you pay $2,000 per month for your mortgage, plus an extra $57 from Plastiq. If your credit card had a rewards rate of 2%, you’d only get $40 back — which means you’d be $17 in the hole.

 

You Want To Earn A Welcome Bonus

You’re more likely to come out even (or even get ahead) in this situation. For instance, if your credit card issuer offers $500 for spending a minimum of $2,000 within three months of opening an account, you would come out with $443 after the processing fee.

 

However, you should be mindful that this situation is really only available to new cardholders. Without a welcome bonus, it’s unlikely that using your credit card to pay your mortgage will benefit you.

 

You Don’t Want To Make A Late Payment

If you need to pay your home loan, but you’re still waiting on your next paycheck, your credit card could prevent late payment. However, you should only do this if your income stream is temporarily disrupted, and you can repay the entire balance on the due date.

 

Paying your mortgage with your credit card one time may offset the cost of Plastqiq’s processing fee if it means preserving your credit. But if you consistently struggle financially, you risk becoming trapped in a cycle of debt. 

 

You Need To Avoid Foreclosure

If your income disruption is extreme or long term, you may believe that continuously using your credit card to pay your mortgage is worth losing your home. However, credit cards are among the most expensive types of debt, which means your financial situation will only worsen in the future.

 

If you need money, don’t turn to payday lenders or cash advances, which have even higher interest rates than credit cards and zero grace period. Instead, ask your home loan lender for hardship programs or look for government assistance.

 

What Should You Do If You Can’t Afford Your Mortgage?

In this situation, you can apply for forbearance, which temporarily suspends payments. It’s a worthwhile option if you rely on your credit cards to stay afloat. 

 

Right now, federal home loans from the VA, Fannie Mae, and Federal Housing Administration are protected from foreclosure during the coronavirus pandemic. If you don’t have a federally-backed mortgage, contact your lender to request a forbearance or other alternatives.

 

You can also visit the Consumer Financial Protection Bureau, which can help you navigate forbearance regulations during the pandemic. But if your cash flow problems are temporary, the National Foundation for Credit Counseling may be able to help. 

 

Does Using Your Credit Card To Pay Your Mortgage Hurt Your Credit Score?

Charging a large bill like your home loan can send your credit utilization ratio soaring. Credit utilization is the credit you’ve used out of the amount that your lender gave you. Ideally, your rate should not exceed 30% — but if you want a better score, you should aim for under 10%.

 

Suppose you have a total credit limit of $3,000, and you pay $2,000 for your mortgage bill plus $57 to use Plastiq. That would put your credit utilization ratio at nearly 69%. If you manage to pay the balance in full in a short amount of time, your score will diminish slightly but quickly recover if you maintain a low ratio. 

 

On the other hand, if you have a good to excellent score and have a secure income stream, using your credit card to earn the occasional welcome bonus could be worth it. Other than that, you should probably try to find a different way to pay your mortgage. 

 

Source
  • Harzog, Beverly. “Can You Pay Your Mortgage With a Credit Card?” U.S. News & World Report, U.S. News & World Report, 20 Jan. 2021, creditcards.usnews.com/articles/can-you-pay-your-mortgage-with-a-credit-card.
Ian Schindler