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It's your credit card and it's your mortgage. You'd think it'd be no sweat to use the former to cover the latter as long as the bill gets paid — perhaps to rake in credit card rewards on that hefty expense, or to buy some time to cover your house payment if you're short on money. But that's not always the case.
In fact, it’s generally a stretch to find companies that accept debt-for-debt payments. Whether you have the option to pay your mortgage by credit card depends on several factors, including the terms of the card issuer, your mortgage lender and your credit card’s network — Visa, Mastercard, American Express or Discover.
A third-party service may let you get around some of the roadblocks for a fee, but you'll want to think through whether it's the right move.
How to pay your mortgage with a credit card
A third-party payment service like Plastiq facilitates mortgage payments with a Discover or Mastercard credit card. Visa and American Express don’t currently allow mortgage payments through this service.
You pay Plastiq a fee equaling 2.85% of your mortgage payment every time you use your credit card. Plastiq then delivers an electronic payment if the lender accepts it, or it cuts the mortgage lender a check, eliminating the need for all three parties — the mortgage lender, the credit card issuer and the credit card payment network (Visa, Mastercard, etc.) — to approve the transaction.
You can pay manually this way or set up automatic payments. You also have the option of making a one-time payment.
Ideally, you then turn around and immediately pay back your credit card for the amount of the mortgage payment plus processing fee. If you made the transaction with an eligible rewards credit card, you'll earn rewards as you would with any other purchase.
Factors to consider when paying a mortgage with a credit card
Even if you can find a way to pay your mortgage with a credit card, it may not be worth it for your budget, your credit or both. There are several factors to consider before choosing this option:
FEES VS. REWARDS
It’s tempting to pay your mortgage with a credit card if it means you could earn rewards on that typically significant bill. But the cost of a third-party processing fee can eliminate your earnings. If you have a mortgage payment of $2,500, and you’re paying a 2.85% processing fee, that’s $71.25 each time.
Credit card reward rates vary by issuer, but it’s rare that they exceed the cost of such a fee. One exception is a credit card's sign-up bonus. If putting a one-time mortgage payment on your card would help you meet a minimum spending requirement for a lavish bonus that far exceeds the fee, it could make sense.
THE COST OF INTEREST
Putting your mortgage payment on a credit card can result in costly interest charges if you don’t pay your credit card bill off in full every month. The long-term expense of carrying large ongoing balances would easily wipe out any rewards you might earn.
Effect on YOUR CREDIT SCORES
Making a mortgage payment with your credit card will likely take up a significant amount of your credit limit and increase your credit utilization ratio, your total debt compared with your total credit limits. This figure has a significant impact on your credit scores, and ideally you want to keep the ratio low, generally 30% or lower. A mortgage payment reaching into the thousands of dollars won't help.
“A mortgage payment reaching into the thousands of dollars won't help your credit utilization ratio.”
Consider an example: Suppose you have a $10,000 limit on the credit card you want to use to pay your mortgage. Let's say that you already have a balance of $2,000 on that card, and that your mortgage payment is $2,500. Putting that payment on your card could push your credit utilization to 45%. Add more transactions, and your credit utilization keeps climbing.
If you're planning to make mortgage payments with your credit card, consider requesting a credit limit increase from your issuer to minimize the impact on your credit scores.
Obstacles to paying a mortgage with a credit card
It seems that the stars have to align so that you can make a mortgage payment with your credit card. Your card network, your card issuer and your mortgage lender all have to give the green light for a mortgage payment to go through successfully. Each party has its own rules.
For example, Visa allows mortgage lenders to accept Visa debit and prepaid card payments; Mastercard allows the use of debit and credit cards for mortgage payments.
But some credit card issuers don’t allow mortgage payments. Bank of America credit cards, for instance, cannot be used to pay a mortgage. Wells Fargo credit card holders may have more luck; their cards can be used to pay a mortgage as long as the mortgage lender accepts them.
“Check with all three parties — card network, card issuer, mortgage lender — to ensure your payment will process.”
Of course, not all mortgage lenders do, but they might be more willing to accept your payment if it’s processed by a third-party payment service provider like Plastiq.
It’s best to check with all three parties — card network, card issuer, mortgage lender — to ensure your payment will process. Otherwise, you run the risk of a late or declined mortgage payment.
Should you pay your mortgage with a credit card?
If you can navigate the waters to make it possible, paying your mortgage with a credit card is an option, assuming the rewards outweigh the fee. As long as it won't hurt your credit and your budget, it’s worth considering.
But if you’re already using a large chunk of your credit limit, or if you’re tight on money for bills this month, putting your mortgage on a credit card isn’t the best idea. It could hurt your credit scores and end up further straining your budget over the long term if you don’t pay your credit card bill off in full.