Can You Pay Your Mortgage With a Credit Card, and Should You?
Using your credit card for mortgage payments might seem like a straightforward solution in certain situations, but it’s not as simple as it first appears.
April 26, 2022
Using a credit card for big purchases has a couple potential benefits: It delays your payment obligations, and you might be able to earn cash-back rewards. But can you pay your mortgage with a credit card?
While most mortgage providers won’t let you do so directly, there are a few workarounds. However, that doesn’t necessarily make it a good idea.
To help you reach your own conclusion for your specific situation, we’ll run through the basics of how mortgage payments work, how mortgage providers treat credit card payments and the pros and cons of using your plastic for this purpose.
How do mortgage payments work, and what if you don’t pay?
When you sign up for a mortgage, you agree to monthly payments, which the provider calculates based on the size of your loan, your loan length, interest charges, taxes and insurance.
Most people pay their mortgage by making direct payments from their bank, but sometimes it’s also possible to pay through a money order, certified check or cashier’s check. If you’re unsure what your mortgage company allows, it’s important that you check with them.
But what happens if you don’t make any payment at all?
Lenders typically offer a grace period of around 15 days after your payment is due, during which you won’t face any late fees or serious consequences. If you fail to pay by the end of the grace period, you will be charged late fees.
The late payment will also be reported to credit bureaus and can remain on your credit report for seven years. This will have a negative influence on your credit score and make it harder to borrow money in the future.
Even worse, you could eventually face foreclosure after three to six months of missed payments.
Nobody wants to end up in this situation. So, if you don’t have the money, can you turn to your credit card?
Can you pay your mortgage with a credit card?
At first, it seems like the answer is a clear no. We didn’t list credit cards as a payment method earlier, and that’s because mortgage lenders usually won’t accept them.
This is actually in your best interest — paying your debt by using more debt is generally a bad idea, and we’ll explain why later.
But it’s not pure altruism on the part of the lenders. Another factor is that credit card issuers usually charge transaction fees, which a mortgage company would prefer to avoid.
However, there are a few potential workarounds.
Possible workarounds to pay your mortgage with a credit card
Not having the option to pay your mortgage with a credit card can be an inconvenience for some people, so it shouldn’t be surprising that someone found a solution.
Two possible workarounds are a third-party credit card payment service or a money order.
Various third-party services have sprung up to bridge the gap when credit cards aren’t accepted. One such service is Plastiq. You pay Plastiq with a credit card, and then Plastiq makes the mortgage payment on your behalf.
But beware, since this is a special service, it comes at a cost. For instance, Plastiq charges 2.85% per transaction. Plus, there are limitations on the types of cards you can use, and some card brands don’t allow for all payment types. For example, you can’t use a Visa or American Express credit card for a mortgage payment, meaning you’ll be limited to using Discover or Mastercard.
Remember that services like Plastiq are relatively new. Although the service could grow with time, it’s also possible that it could disappear or introduce more restrictions. You may not want to rely on a service like this as a long-term solution for paying your mortgage.
Another possible workaround is a money order. Since some mortgage providers accept money orders as a payment method, it may be possible to use your credit card to take out a cash advance. You can then use that cash to buy a money order to pay your mortgage.
However, the usual limit for money orders is $1,000, which may not be enough to cover your mortgage payment. You will also face fees for taking out the cash advance and for buying the money order.
Is it a good idea to pay your mortgage with a credit card?
Just because you can do something, it doesn’t mean you should. Let’s run through the pros and cons of using your credit card to cover your home loan payments.
The pros of paying your mortgage with a credit card
Many of the best credit cards offer generous rewards like sign-up bonuses or cash back, and maximizing your credit card usage means you’ll earn more.
For example, if you could access credit card rewards like a 3% cash-back rate, this would outweigh the 2.85% fees of using Plastiq.
Or you might be interested in using your credit card as a way to delay your mortgage payment while you earn interest elsewhere — e.g., in the stock market.
Credit cards come with a grace period that lasts for at least 21 days after your credit card billing cycle ends. That’s an extra window of time when you could potentially be investing your money at a profit. However, it’s practically impossible to earn high interest without taking on high risk, meaning there’s a good chance you’d lose money instead of profiting.
Finally, if you’re in an emergency situation and have been unable to negotiate an alternative with your lender, using your credit card might be your last resort to avoid defaulting or facing foreclosure. It’s important to bear in mind that you’ll still need to cover your payments eventually, so you should be sure you’ll be able to cover the expense before your credit card bill comes around.
The cons of paying your mortgage with a credit card
Many people view their mortgage as their most urgent form of debt since it usually carries the highest monthly payment, yet a mortgage tends to carry a much lower interest rate than credit cards. The average mortgage rate for a 30-year fixed mortgage is 4.86% while the average credit card interest rate in 2021 was 15.91%.
So, if you use your credit card to pay your mortgage and you’re unable to pay your credit card bill when it’s due, you’ll end up owing more interest than you did originally. You’ll have paid interest with your mortgage payment but now also racked up interest through credit card debt — and probably at a higher rate.
As we’ve touched on already, using a third party or a workaround usually means you’ll face processing fees, which is likely to tip the balance against using your credit card. If your credit card offers cash back at a 3% rate and you’re paying 2.85% fees, is it worth the stress and bother of figuring out a workaround for a mere 0.15% cash-back rate?
Finally, another cause for concern is the impact on your credit utilization ratio — the percentage of your available credit limit that you’re using each month. The lower your credit utilization, the better it is for your credit score. And mortgage payments tend to be sizable.
For example, if your mortgage payment is $1,500 per month and your total credit limit is $2,500, your credit utilization ratio would go up to 60% with just that one charge on your card.
The choice is yours
Although most mortgage providers don’t want you to pay your mortgage with a credit card, there are a few ways to get around this limitation. While this can make sense for a few people, the bottom line is that generally, it’s wise for borrowers to stick to more conventional payment methods to avoid fees and higher interest rates.
Mortgages and payments can get complicated. Wondering if you might be missing any other important personal finance insights? Tally’s newsletter is full of more tips and tricks to help you navigate the financial world and stay on top of everything.