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Paying for your mortgage each month with one of your rewards credit cards sounds appealing, but there are many nuances and roadblocks to this approach.
One of the largest problems is that many mortgage companies do not allow consumers to use debt to pay for other types of debt. Some third-party companies have provided this option, but the fees that homeowners must pay are often extremely expensive such as 2.5% of your mortgage payment each time.
Another major obstacle is that not all the credit card networks, American Express, Discover, Visa, or Mastercard will allow mortgage payments to be charged onto your account. The company issuing the credit cards like Wells Fargo, Chase, or Bank of America may also have similar rules.
Hurdles to Paying Your Mortgage with a Credit Card
If you're not paying off your credit card balance immediately, the credit card interest charges accrued from paying for your mortgage payment on a credit card each month mean you'll be shelling out hundreds or thousands of extra dollars.
This is in addition to any fees that are charged by a third-party provider or a mortgage company. Even if you are reaping many airline miles or cash back rewards, this option would likely eliminate your gains. A homeowner with a $2000 mortgage payment who pays a 2.5% processing fee is paying $50 each month, which adds up to $600 a year.
How Payments Work with a Third-Party Company
One strategy is paying your mortgage company directly. This option only works if your credit card company, along with the card network, plus your mortgage company allows payments in this manner.
An easier method is to use a third-party company which can process your credit card payment, and pay your mortgage company directly. One company, Plastiq, allows mortgage payments only if you have a Mastercard or Discover credit card, but charges a hefty fee of 2.5% of your mortgage payment.
The mortgage company is then paid from a check, wire transfer or ACH transfer. Using this method, homeowners do not need approvals from their mortgage companies. Consider your budget and whether paying the fees makes sense.
Rules Among Credit Card Networks
Each credit card network has different rules and regulations on whether they accept mortgage payments. Mastercard will accept both debit and credit card to pay your mortgage each month. On the other hand, Visa only allows payments via their prepaid and debit cards. Discover and American Express do not participate.
Check with your credit card issuer on their terms. Credit cards issued by Wells Fargo were once accepted for mortgage payments if the lender agreed. However, the website for Wells Fargo states that it is no longer an option. Bank of America has a similar rule for its credit cards.
When It Makes Sense to Use a Credit Card
Unless you are in a financial bind, homeowners should avoid paying for their mortgage with a credit card. It can make sense only if you received a new card which has a sign-up bonus and you are attempting to meet the minimum spending requirement which can be as high as $5,000 or more in a three- or five-month time period.
For instance, you can earn 60,000 bonus points for getting the Chase Sapphire Preferred® Card, but you must spend $4,000 in purchases the first 3 months of having the card. In most cases, rewards credit cards require you to spend anywhere between $1,000 and $5,000 within the first 90 days of opening the account to get the bonus points they're offering.
Meeting the minimum can be achieved much easier when you purchase a large item like an appliance or paying for your mortgage so you can avoid forfeiting a bonus opportunity only because you failed to meet the spending requirement. Check out more ways to maximize credit card rewards here.
Only apply for a rewards card if you can make sure you won't carry a balance. Otherwise, the benefits of your credit card's rewards and bonuses will probably be eliminated by the high interest charges unless you pay off the balance in full each month.
When you have too credit card debt, it will increase your credit utilization rate which will also negatively impact your credit scores. Your credit utilization rate is the amount of credit you're using compared to your overall available credit. Most experts suggest it should be at 30% or lower (e.g. $3,000 on a $10,000 limit). Even just one mortgage payment of $2,000 plus a balance of $1,500 will increase your ratio to more than 30%.
Alternatives to Using a Credit Card for Your Mortgage
Homeowners should carefully weigh the consequences of using a credit card or a third-party service to pay their monthly mortgage. In most instances, consumers should avoid using this option because it can cost you a lot of money and potentially lower your credit scores.
If you need help with your mortgage payment, call your lender before you miss a payment and negotiate a new repayment schedule or forbearance where the lender can lower or suspend your payments for a limited period of time.