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There are several reasons why it might seem like a good idea to pay your mortgage with a credit card. Maybe you're short on cash until your next paycheck comes in, and you'd rather charge your monthly payment instead of tapping into your savings. Or maybe you want to earn credit card reward points or miles each month when you pay your lender.
Regardless of whether you think paying your mortgage lender with a credit card sounds like a good idea, the question of whether you can is another matter. In this article, we'll explore the reason why you might find it difficult to pay your mortgage with a credit card, a couple of potential workarounds, and why it still might not be in your best interest to do so.
Can you pay your mortgage with a credit card: The short answer
So, can you pay your mortgage with a credit card? The short answer is probably no. With most mortgage servicers, you cannot directly pay your monthly mortgage payments with a credit card. Processing credit cards costs money, and most lenders simply don't want to absorb the cost.
What's more, many credit card issuers don't allow mortgage payments even if the lender does -- Visa (NYSE: V) credit cards cannot be used for mortgage payments, and cards of any type issued by certain banks also cannot be used for this purpose. So, even if your lender is one of the very few that accepts credit card payments, there's no guarantee your card will cooperate.
In a nutshell, in order to use your credit card to pay your mortgage, you'll need to have:
- A lender that accepts credit card payments.
- A credit card on a payment network that allows mortgage credit card payments.
- A card issuer that allows credit card mortgage payments.
This is an extremely rare combination that virtually never happens. The bottom line is that you probably cannot simply log into your lender's payment portal and use a credit card to make your monthly mortgage payment.
It's worth mentioning, however, that many lenders are set up to accept debit card payments. So if you want to use your debit card to pay your mortgage, you might find that significantly easier to do.
Possible ways to pay your mortgage with a credit card
So, it's unlikely that you can directly use a credit card payment for your monthly mortgage costs. But that doesn't mean it can't be done. There are a couple of potential ways to get around it and use a credit card to pay your monthly mortgage payments.
There are third-party payment services that facilitate mortgage payments with credit cards. Plastiq is the most popular and allows payments with Mastercard (NYSE: MA) and Discover (NYSE: DFS) credit cards.
But it's important to note that this isn't exactly a free service -- Plastiq charges a processing fee of 2.85% of the mortgage payment amount. Also, this isn't an instant payment like most credit card transactions -- with Plastiq, it can take as long as seven business days for the money to reach your lender.
You can potentially use some form of cash advance with a credit card in order to pay your mortgage. And this doesn't necessarily mean physically withdrawing cash at an ATM to use toward your payment.
For example, I have a Wells Fargo (NYSE: WFC) credit card, and Wells Fargo is also my mortgage servicer. On the bank's website, I can simply set up a "transfer" between my credit card and mortgage account, and it will be considered a cash advance. Alternatively, some credit cards send their customers paper checks linked to their accounts.
The biggest caveat to this method is that there's almost always some sort of cash advance fee (3% is typical). Also, unlike credit card purchases, interest typically starts accumulating on cash advances right away (although sometimes you may receive no-interest cash advance offers if you have strong credit). And the interest rate you'll pay on cash advances is likely to be even higher than you pay on standard purchases.
Consider your credit score
For most people, their mortgage payment is their largest recurring expense and will use up a significant portion of their credit limit. "Amounts owed" is the second largest category of information that makes up your FICO credit score, accounting for 30% of the total. So, by charging your mortgage payment to your credit card -- either through a third-party service or a cash advance method -- you could do serious damage to your credit score if you carry the balance.
Is it ever a smart idea to pay your mortgage with a credit card?
One obvious time when paying your mortgage with a credit card can make good financial sense is when you have no other alternative in times of financial hardship. Having a credit line can be a safety net in difficult times, and paying interest on credit card debt is certainly a preferable alternative to your home falling into foreclosure. And the fees you end up paying can be nothing compared to late payment charges and the damage to your credit score.
Aside from cases of financial hardship, it generally doesn't make good financial sense to pay your mortgage loan payments with a credit card if you can avoid it. This is even true if you plan to pay the balance back almost immediately. If you use a cash advance method, you'll almost always have to pay a cash advance fee, and interest typically starts accumulating from day one. And even if you use a third-party payment service like Plastiq, you'll pay a hefty processing fee.
Think of it this way: If your credit card gives you 2% cash back on purchases and you're paying 2.85% in processing fees, it isn't tough to see why you're setting yourself up to lose money.
There are some cases where the benefits can outweigh the cost. If you recently got a new credit card and charging a mortgage payment could get you over the threshold for a lucrative introductory bonus, it could be worth paying the processing fee. -- for example, you'll get 50,000 airline miles worth about $500 if you spend $3,000 in the first three months, and paying your mortgage would get you there. But in most cases, the costs outweigh the benefits.
The Millionacres bottom line
It can certainly be possible to pay your mortgage with a credit card, and in times of financial hardship, it could be a reasonable temporary safety net. However, you'll likely have to use either a third-party payment service or some form of cash advance to make the payment, neither of which is without associated expenses to consider. Paying your mortgage with a credit card can make sense in certain cases, even if you aren't struggling financially, but in most cases, using another payment method is the smarter way to go.
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