Your credit score is an integral part of your financial picture. It determines both whether you can borrow money and the interest rate you’ll be offered. It can even be a factor in determining whether you can rent an apartment or qualify for a job. Because your credit score has such a significant impact on...
If you own a home, your mortgage is probably one of the biggest bills you pay each month. It’s also the most important. If you don’t pay your mortgage, you run the risk of foreclosure — and could eventually lose your home.
If you have a rewards credit card, you might be tempted to use your credit card to pay for your mortgage. Imagine how much cash back or free travel you could earn if you put tens of thousands in mortgage payments on the card each year. And in tough times, you might use your credit card’s grace period to extend your effective mortgage payment due date — giving yourself a bit more time to come up with the cash you need to pay the bill.
However, most lenders won’t let you pay your bill directly with your credit card. That means that you’ll need to use a workaround if you want to pay your mortgage bill with a credit card.
How to Pay Your Mortgage With Your Credit Card
If you want to use your credit card to pay your mortgage company, there are two main strategies you can use.
1. Use Plastiq
By far the simplest way to pay your mortgage bill with a credit card is to use a third-party service like Plastiq.
Plastiq is an online service that lets you make credit card payments to send checks to companies that bill you. For example, if you get a bill from a company that doesn’t accept credit cards, you can enter the company’s details, tell Plastiq how much you want to pay, and let Plastiq charge your card. Plastiq then mails a check on your behalf.
Put simply, you pay Plastiq by card, and Plastiq pays someone else by check on your behalf.
There are some restrictions on this service. Some credit card companies limit the types of payments you can make through services like Plastiq. For example, American Express and Visa won’t let you charge mortgage payments to your card, even through Plastiq. Others don’t mind, including Discover and Mastercard. Plastiq has a handy chart describing what card issuers allow what types of payments.
There are also fees for using Plastiq to make payments. Plastiq charges 2.85% of the amount you want to pay. If your mortgage payment is $1,000, Plastiq charges $1,028.50 to your card, sends $1,000 to your home lender, and keeps $28.50 for itself. That can quickly eat away at any credit card rewards you’d earn.
There’s also a risk that your credit card issuer will code your mortgage payment as a cash advance, incurring more fees and interest. Cash advance fees usually range from 3% to 5% of the transaction amount. Interest, which can be as high as 20% or more, starts to accrue immediately.
2. Buy Money Orders With Gift Cards
A more complicated method for paying your mortgage with a credit card is to use money orders.
Money orders are cash equivalents that work much like a check. You can buy a money order for a certain amount and give it to someone else to pay them. They can then deposit that money order to their bank account.
Typically, you can’t buy a money order using a credit card. However, there are workarounds. Some companies that sell money orders will let you purchase them with prepaid cards or generic gift cards. That means you can use a credit card to buy a gift card, then turn that gift card into a money order which you use to pay your mortgage.
Some companies have nationwide policies allowing or forbidding this practice. In many cases, the policy can differ on a store-to-store or even employee-to-employee level.
Your best bet is to check the vendor’s website to see if info is available. If you can’t find it, you can always stop by your local store and give it a try.
Even when permitted, this process is complicated. It can be hard to find both a store that lets you buy gift cards with a credit card and a store that lets you buy money orders with a gift card. It’s even harder to find both in the same store.
It also isn’t cheap. You usually pay a fee to buy a gift card, often a bit more than 1%. Money orders also incur a cost. The post office charges $1.45 for money orders $500 and under and $1.95 for money orders from $500.01 to $1,000. Walmart caps fees at $1 per transaction.
These fees eat into your credit card rewards earnings, though probably not enough to offset them entirely. A bigger problem: Your card issuer might not give you rewards on gift card purchases due to their cashlike nature.
Should You Pay Your Mortgage With Your Credit Card?
Paying your mortgage by credit card can be tempting for a few reasons, from earning rewards to giving you more time to come up with cash. However, it’s not always the best choice.
Pros of Paying Your Mortgage With Your Credit Card
Paying your mortgage with a credit card offers a few valuable benefits.
- Earn Credit Card Rewards. According to Bloomberg, the average monthly mortgage payment is about $1,230 per month, not including taxes and insurance. While the fees you pay will typically outstrip the 2% or so you can earn in regular cash back, there may be cases where you’ll earn more than you pay.
- Earn Sign-up Bonuses. Some credit cards offer lucrative sign up bonuses that require hitting a minimum spend requirement, such as $3,000 within three months of getting the card. It could be worth paying fees in that case. However, remember that if your card issuer sees these payments as cashlike, they won’t count toward the spend requirement.
- More Time To Come Up With Cash. Your mortgage payment has a hard due date that you can’t miss. Putting the payment on your credit card gives you a bit more time to come up with the money to pay your bill. If you’re living paycheck to paycheck, an extra few weeks to pay your mortgage can be valuable.
Cons of Paying Your Mortgage With Your Credit Card
The truth is that in most cases, paying your mortgage with a credit card isn’t worth the trouble. There are many drawbacks to using a card to pay the bill.
- Fees. Paying your mortgage with a credit card means dealing with high fees. Services like Plastiq charge as much as 2.85% of the amount you pay, which is higher than the rewards rates on the majority of credit cards. If you’re trying to earn rewards, you’ll ultimately pay more than you earn.
- It’s Hard To Do. Using a service like Plastiq is pretty easy but expensive. Using a credit card to buy gift cards to buy money orders that you use to pay your mortgage is cheaper, but it’s so complicated that it often isn’t worth the hassle.
- Interest. If you’re using your credit card to pay your mortgage out of desperation, there’s a pretty good chance that you’ll have trouble paying the credit card bill when it comes due. That means you might not pay the balance in full and start accruing large amounts of interest.
- Lower Your Credit Score. If you use your credit card to pay your mortgage lenders each month, you’ll add to your credit card balance. This can hurt your credit utilization ratio, potentially lowering your credit score and making it harder to get loans in the future.
The promise of hefty rewards payouts or an extra month to make ends meet sounds like great reasons to pay your mortgage with a credit card. But the truth is that it’s likely not worth the trouble.
The one case where you might want to pay your mortgage with a credit card — temporarily — is when you’re trying to hit high spending requirements for a lucrative credit card sign-up bonus.
In these cases, you’ll pay a fee for the service, but you’ll likely earn it back and more from sign-up bonuses that can be worth hundreds or even thousands of dollars. Otherwise, the processing fees and other costs will be more than the benefits offered by even the best credit cards, and you’ll be better off paying your mortgage in the traditional way.