Barrons Independent

When facing financial difficulties, using a credit card to pay off your mortgage can buy you some time and even allow you to spread out the repayment of a single mortgage payment over a number of months. Using a credit card to pay for your mortgage also lets you earn a big welcome bonus or piles of points that you wouldn't typically be able to obtain via regular spending.

For most homeowners, one of their most significant monthly expenses is their mortgage. You might be looking for methods to use a credit card to pay your mortgage if you want to get the most out of your credit card benefits. There are methods to utilize your credit card to make a payment, even if the majority of mortgage firms do not accept them.

One of the most significant monthly costs for homeowners is mortgage management. The thought of paying your mortgage using a credit card while you're struggling financially may sound reasonable. In this article, we will discuss how you can make your mortgage payment with your credit card.

Understanding Mortgage Payments

Understanding mortgage payments is crucial for any homeowner or potential homebuyer. Traditionally, a mortgage payment is a monthly financial commitment made to a lender, which goes towards repaying a loan taken out to purchase a property. This payment typically includes four key components: principal, interest, taxes, and insurance (often abbreviated as PITI).

The principal is the amount of money borrowed and is a portion of the total payment that goes towards reducing the outstanding balance of the loan. The interest, on the other hand, is the cost of borrowing that money, calculated as a percentage of the principal.

Initially, a more significant portion of the monthly payment is directed toward the interest, but as the loan matures, this shifts more toward the principal. Property taxes and homeowners' insurance are also often included in mortgage payments, especially when an escrow account is involved.

The lender collects these additional funds and pays the respective bills when they are due, ensuring that these critical expenses are noticed. Credit plays a significant role in mortgage payments, primarily in determining the interest rate. A borrower's credit score, a numerical representation of their creditworthiness, influences the risk assessment for lenders.

A higher credit score often translates to a lower interest rate, making the mortgage more affordable over its lifetime. Conversely, a lower credit score can lead to higher interest rates, increasing the overall cost of the mortgage.

How Do You Use A Credit Card For Mortgage Payments?

Utilizing Plastiq.Com For Mortgage Payments

Plastiq.com is a service that allows users to pay various bills, including utilities and contractor payments, using a credit card. This service is beneficial for bills that typically do not accept credit card payments, such as mortgages. However, the service charges a 2.9% fee for each transaction.

While Plastiq.com accepts most credit cards for general bill payments, options for paying mortgages are more restricted. Only certain types of Mastercards and Discover cards are eligible for mortgage payments through this platform.

The key benefit of using Plastiq.com is the potential to earn credit card rewards that outweigh the transaction fee. For instance, if a credit card offers 3% back in rewards and each reward point is equivalent to 1 cent, using it to pay a mortgage through Plastiq.com can be slightly profitable, as the rewards can marginally exceed the 2.9% fee.

A strategic use of Plastiq.com is to meet the spending requirements for credit card welcome bonuses. For example, if a new credit card offers a bonus for spending a certain amount within the first few months, using Plastiq.com to pay a hefty bill like a mortgage can help reach that threshold, potentially earning significant rewards even after accounting for the service fee.

Converting Gift Cards To Money Orders For Mortgage Payments

An alternative method to indirectly use a credit card for mortgage payments involves purchasing pin-enabled Visa gift cards. These can be bought at various retailers, potentially earning credit card rewards, especially if the card offers bonuses for purchases in specific categories like groceries.

Once purchased, these gift cards can be used to buy money orders at banks, grocery stores, or other retailers like Walmart. However, the feasibility of this method depends on the policies of the specific retailers and banks, as some may have restrictions on the types of cards accepted for money order purchases.

While using gift cards and money orders can be a way to use credit cards for mortgage payments, it's a complex process with several potential pitfalls. It's less about earning rewards and more about finding a workaround for using a credit card to pay a mortgage.

The Pros Of Paying A Mortgage With A Credit Card

Convenience And Flexibility

It could be more flexible to pay your mortgage straight to your lender. Should you encounter any brief financial difficulties or cash flow issues, you could find it difficult to send in your payment on schedule.

You don't have to have enough cash on hand to pay your entire mortgage payment if you use a credit card. You do not need to have cash on hand, but you will still need to pay your mortgage on time or in advance. Additionally, your credit card issuer won't charge interest for this service if you pay off your balance in full each month.

Earning Rewards And Cashback

A lot of credit card issuers incentivize you to spend more money by providing cashback and perks. Credit card issuers frequently calculate these incentives as a percentage of your monthly expenditure. The best credit cards, for instance, provide benefits like 2% cash back on all purchases and 5% rewards on spending in particular areas, such as business costs.

You will receive rewards based on the amount of your mortgage payments if you have rewards credit cards and use them to make your mortgage payments. Remember to compare the benefits and cashback you might receive with any additional costs associated with using your credit card in this manner. It isn't worth using your credit card to pay your mortgage if the interest and other expenses exceed the value of the cashback and points.

Avoiding Late Payments

Making late mortgage payments might have disastrous effects. Initially, there's a chance of credit harm and a lousy entry on your credit record. You will eventually run the risk of going through a foreclosure and losing your house completely. By allowing you more time to gather the funds for your payment, charging your mortgage on your credit card can help you avoid these problems.

Using your credit card to pay your mortgage is just a short-term fix to keep your payments on time. Use this option only if you can afford to settle your credit card debt in total and your financial difficulties are short-term. You will only accrue extra debt if it takes longer than a month to resolve the situation that keeps you from paying your mortgage on schedule.

The Cons Of Paying A Mortgage With A Credit Card

Transaction Fees And Interest Charges

To use your credit card to pay your mortgage, you'll probably have to pay transaction fees and interest charges unless you can make payments straight from your credit card to your mortgage lender.

For instance, third-party payment systems will take your credit card payment and send it to your mortgage lender in return for a convenience or transaction charge. You will be responsible for paying cash advance fees on the amount you borrow against your credit limit if you use your credit card to take out a cash advance to pay your mortgage.

Cash advances are riskier, higher-interest debt since their interest rates are frequently more significant than those of regular credit card debt. If you have to pay extra for transaction fees or interest, your mortgage will cost more altogether.

Impact On Credit Score And Credit Utilization Ratio

Your credit score and credit usage ratio may suffer if you charge your mortgage on your credit card. The ratio of the amount of credit you are now utilizing to the total amount of credit that is available to you is known as your credit usage ratio. You are getting closer to using up all of your credit and may run into financial difficulties if your usage ratio is more excellent.

Because of this, a high credit usage ratio is typically interpreted by creditors as an indication that you are not handling your credit obligations responsibly. Using your credit card to pay off your mortgage will result in a higher credit usage ratio and more credit being used.

To prevent harming your credit score, experts advise maintaining your credit usage percentage below 30%. Think about whether the damage to your credit score is worth it if using your credit card for your mortgage will cause your credit usage ratio to rise beyond this threshold.

Increased Credit Card Debt

Using a credit card to pay for your mortgage might seem like a simple method to pay off interest later on, but that is only true if you are able to pay off your credit card debt in full by the due date. Interest rates on credit cards are generally far higher than those on mortgages.

Using your credit card to pay off your mortgage might result in a much higher monthly payment if you have a large credit card debt. If you want to lower your credit card debt, there are better courses of action than using a credit card for your mortgage.

Alternatives To Using A Credit Card To Pay Your Mortgage

In your case, paying your mortgage using a credit card might not be the wisest course of action. Think about using other payment options, such as refinancing your home or establishing automated bank transfers.

Set Up Automatic Bank Transfers

It's easy to make monthly mortgage payments when you set up automated bank transfers. Your bank will take care of paying your mortgage automatically, so you won't need to worry about sitting down every month to transfer money.

This strategy's disadvantage is that it may cause issues if you need more money in your account to pay your mortgage. If such is the case, failing to make a payment may result in late fees and other penalties.

Make Bi-Weekly Or Additional Payments

Although bi-weekly or supplementary payments are also acceptable, lenders typically only want monthly mortgage payments. By making these extra payments, you'll reduce the amount of your mortgage faster and avoid paying interest. Make larger payments now while you have the money available if you're concerned about your ability to pay your mortgage in the future.

Consider Refinancing Your Mortgage

By lowering your interest rate, refinancing your mortgage may result in reduced monthly payments. Refinancing is a wise move if you can reduce your current interest rate by one percentage point or more.

When you search around, compare the top mortgage lenders to make sure you receive the most fantastic deals and don't pay any additional costs. Refinancing your mortgage is one of the finest solutions for suffering mortgage payments while interest rates are low.

Is It Worth It To Pay Your Mortgage With A Credit Card?

Check to see if it's even feasible to use a credit card to pay your mortgage before doing so. To find out about limitations, cardholders should review the conditions of their credit cards. When using a credit card to pay for a mortgage, cardholders also need to take into account the payment network they have, such as Visa, Mastercard, Discover, or American Express.

This might provide a significant obstacle. Find out whether there are any limitations on the kinds of payments that may be made by contacting the mortgage lender. The final objective for using a credit card to pay off the mortgage should be considered by the cardholder once they have established if it is even feasible to do so.

It's generally not a good idea to use a credit card as a last option if you are having financial difficulties. The interest rates for mortgage loans are usually relatively low (far lower than a credit card). More excellent rates will result in a higher total cost if the cardholder is unable to pay off an amount before the conclusion of a billing cycle.

Considerable debt accumulation on a credit account would also raise the credit use rate of the cardholder, eventually lowering their credit score.

Frequently Asked Questions

What Are The Advantages Of Using A Credit Card For Mortgage Payments?

The advantages include earning potential rewards and cashback, managing short-term financial gaps, and avoiding late mortgage payments.

Can Credit Cards Be Used To Pay Mortgages?

Yes, credit cards can be used to pay mortgages through services like Plastiq.com, but card type restrictions may apply.

How Does Paying A Mortgage With A Credit Card Affect Credit Scores?

It can increase the credit utilization ratio, which negatively impacts credit scores if the ratio becomes too high.

What Are The Risks Involved In Paying Mortgages With Credit Cards?

The risks include accruing high-interest debt, increased credit utilization, and potential adverse effects on credit scores.

Conclusion

How you can make your mortgage payment with your credit card using a credit card can be a strategic move in managing short-term financial challenges, offering flexibility and potential rewards. Services like Plastiq.com enable such payments for a fee, and alternatives like converting gift cards to money orders are available, though complex.

Caution is essential, as the benefits of convenience and rewards must be balanced against risks like increased credit card debt, higher interest rates, and impacts on credit scores and utilization ratios. Homeowners should carefully evaluate their financial situation and the terms of their credit cards to determine the cost-effectiveness of this method.

In some instances, options like refinancing or automatic bank transfers may be more suitable. Ultimately, while credit card mortgage payments can provide temporary relief and perks, it's vital to consider the long-term financial effects to maintain overall financial health and stability.