When managing mortgage payments, homeowners tend to think outside the box and are often willing to try unconventional approaches. One such avenue that catches attention is to pay mortgage with credit card. Although this approach might raise eyebrows, it does prompt a critical question: Can you really pay mortgage with credit card? The answer is yes! But should you? Well, that depends. To shed light on this, we need to dig deeper into the pros and cons.
This article explores the details of paying mortgage with credit card, and help you make an informed decision that can impact your financial landscape significantly.
How To Pay Mortgage with Credit Card
Mortgage lenders will usually not allow you to pay mortgage with credit card. This prompts homeowners to seek alternative methods. One common workaround involves third-party services that facilitate payments on your behalf. These services often come with fees, and it's crucial to tread carefully, considering the potential costs.
Using a Third-Party Service
One method to pay your mortgage with a credit card is to use a third-party service. These services receive your payment and then send a paper check or electronic payment to your mortgage lender. However, convenience comes at a cost.
For instance, Plastiq charges a fee of 2.85% of the transaction amount, meaning a $1,500 monthly mortgage payment incurs an additional $513 in fees annually.
Cash Advance on Credit Card
Another approach involves withdrawing your mortgage payment amount using a credit card at an ATM or bank. While this method provides quick access to cash, it often comes with considerable fees, which can be around 5% of the cash advance amount.
Purchase a Gift Card for a Money Order
For those seeking alternative routes, purchasing a gift card with your credit card and using it to buy a money order is an option. However, only those Visa or Mastercard gift cards that can operate as debit cards are suitable for this transaction.
Pros and Cons of Paying Mortgage with Credit Card
The decision to pay mortgage with credit card is a mixed bag of benefits and drawbacks that can impact your financial situation. There are several facets to consider when contemplating this unconventional approach.
Exploring the Benefits – The Pros
Paying your mortgage with a credit card has a spectrum of advantages. Let's explore a few key benefits.
Improved Cash Flow
Paying your mortgage with a credit card can serve as a short-term solution to enhance your cash flow. This can be particularly beneficial if you're facing a temporary financial crunch. By using a credit card, you gain a grace period before the credit card payment is due, providing valuable time to gather the necessary funds to pay off the credit card balance.
Avoiding Late Payment Impact
One significant advantage of using a credit card for mortgage payments is the potential to avoid late payment repercussions on your credit report. Late payments on traditional mortgages can have a detrimental impact on your credit score. By utilizing a credit card, you ensure timely payment, preventing any negative entries on your credit report. This, in turn, safeguards your creditworthiness and maintains a positive credit history, which is crucial for future financial endeavors.
Credit Card Rewards
The allure of credit card rewards is undeniable, and for those actively seeking to maximize rewards, charging substantial expenses like a mortgage payment might seem appealing. However, it's essential to approach this potential benefit with caution.
Before opting for this strategy, carefully evaluate the transaction fees associated with the chosen payment method. Assess whether the rewards earned outweigh the costs incurred. In some cases, the rewards may justify the fees, providing an opportunity to earn valuable points, cashback, or other perks.
Examining Potential Drawbacks: Cons
Although the approach to pay mortgage with credit card has a host of advantages, it is equally (if not more) important to be wary of the potential risks and downsides.
Risk of a Debt Cycle
Failing to pay off the credit card bill in full can expose you to the risk of falling into a debt cycle. Credit card interest rates are notoriously high, often surpassing 16%. If you carry a balance from month to month, the accumulating interest can quickly escalate, leading to a cycle of debt.
This situation can significantly impact your financial stability in the long run, potentially offsetting any short-term benefits gained by using a credit card for mortgage payments.
One of the most significant drawbacks of paying your mortgage with a credit card is the accumulation of costly fees. Third-party payment services often charge transaction fees to facilitate the process. For instance, if you use a service like Plastiq, the fees can be a percentage of the transaction amount, such as 2.85%.
Over time, these fees can add up, potentially outweighing any benefits derived from the convenience of using a credit card. Late fees from your credit card issuer may further compound the overall costs, making this method financially burdensome in the long term.
Impact to Credit
Utilizing a credit card for mortgage payments can have repercussions on your credit profile. One notable impact is on your credit utilization ratio, a crucial factor in determining your credit score. The credit utilization ratio reflects the percentage of available credit that you are using.
Paying a substantial expense like a mortgage with a credit card can significantly increase this ratio, potentially negatively influencing your credit score. It's generally recommended to keep the credit utilization ratio below 30%, and exceeding this threshold can signal financial strain to creditors, affecting your overall creditworthiness.
Should You Pay Mortgage With Credit Card?
The decision to pay mortgage with credit card requires a thorough analysis. Remember to consider the following factors:
- Calculate All Fees: Understand and calculate the fees associated with using various services for credit card mortgage payments. Ensure the benefits outweigh the costs.
- Timely Repayment: If you can promptly pay off your credit card, the fees might be less than potential late fees from your lender. However, delayed payments may accrue interest, increasing the overall cost.
- Compare Costs: Be sure to carry out a thorough comparison of the costs of buying credit card rewards outright to earning them through mortgage payments. Evaluate whether the rewards justify the fees incurred.
- Grace Period: Know your mortgage lender's grace period. Some lenders offer a window before charging late fees, providing additional time for payment.
- Communication with Lender: If financial difficulties arise, communicate with your lender. Many lenders offer assistance programs, including mortgage forbearance, to support homeowners facing challenges.
While paying mortgage with credit card can offer short-term benefits, the long-term implications and associated costs should be carefully considered. Conducting a comprehensive analysis and weighing the pros and cons will help you make an informed decision aligned with your financial goals and circumstances.