Is it Possible to Pay Your Mortgage with a Credit Card?

Paper-money transactions are becoming less common mainly due to the digitalization of most businesses. Plastic money is quickly gaining popularity and the future of paper money remains unclear.

Findings from a 2018 study shows that although most people still prefer cash, a large number preferred using debit and credit cards when making big transactions. The results indicated that credit card transactions averaged $67 and transactions made through debit cards stood at $46.

According to the American Bank Association, there were 362 million open credit accounts in 2017. Considering these statistics, and the high population of people with mortgages, it raises the question; is it possible to earn benefits by paying your mortgage using a credit card?

Well, yes.

Here are two ways to successfully make the payment.

Use of an Intermediary

Paying your mortgage using your credit card is not acceptable to most realistic loans lenders. However, a solution can be found in third-party payment processing companies.

How does this work?

The company, for instance Plastiq, acts as an intermediary between you and your mortgage lender. What happens is that the company receives the payment from you using a credit card, they then make the payment to your lender using an acceptable mode of payment such as a money order or cheque.

The service comes at a fee of 2.5%. When using third-party services, stay up to date with your credit card company’s terms since they change frequently and could have additional fees for third-party transactions.

Use of Manufactured Spending

Besides using payment companies, you can pay your mortgage using the Manufactured Spending Method. This is a long process compared to using an intermediary.

Here is what you do: buy a prepaid gift card using your credit card which you should then use to buy a money order. Finally, use the money order to pay for your mortgage.

Be keen on the terms of your credit card agreement, you wouldn’t want a single transaction to result in the closure of your accounts.

Paying your mortgage through a credit card can be a daunting and costly process, but some situations call for it. Let’s look at three scenarios where you can benefit from using your card to pay the mortgage.

1)     When there are Attractive Benefits

The best rewards take the form of cash back or miles which you receive during sign-up or as you use the credit card in what is known as on-going rewards. Holly Johnson and her husband, for instance, earned $2,000 in travel credit rewards after paying $100,000 of their mortgage using a credit card.

To ensure you gain, the rewards should exceed the cost of paying the mortgage. For instance, if the fee incurred when processing the payment was 2.5%, the cash back should be more than 2.5%, preferably 3% and above.

Companies like Plastiq offer a referral program where for every person you refer who makes a payment, you get to make a $1,000 payment that is free from fees.

As a new credit cardholder, a large transaction can help you earn your sign-up bonus faster. Most credit card companies give a cashback reward for reaching a specified target in your credit card usage. To fully benefit, the bonus should be more than the cost of processing the payment.

2)     When You Don’t Have the Funds to Pay on Time

You have probably tried hard enough to keep a perfect credit record, but one late mortgage payment can mess up your score. And the late payment charges just adds to your list of expenses. Your credit card can be a savior in this situation.

Most mortgage companies offer a grace period before penalizing late payments. Use your credit card to make the payment on the last day of the grace period. By doing this you earn a few extra days. However, be sure to pay your balance on time. You don’t want a situation where you are out of one financial problem only to land into another.

You will benefit more in this situation if what the mortgage company charges as late payment fees is more than the processing fee of making the payment using a credit card.

3)     To Boost Your Travelling Experience

For frequent travelers, earning travel rewards can improve your travel experience without paying an extra buck for it. Elite status, a travel reward, comes with benefits that could have otherwise cost you some bucks.

The benefits include faster check-in, priority re-booking in case of canceled flights, seat upgrades, free checked luggage, club-lounge entry, late check-out and weekend stay discounts in hotels among others.

Getting enough mile points to get to the Silver or Gold Medallion Status, for instance, may not be possible with a single payment of your mortgage, but it’s sure to get you closer. You can add on to the points by paying other bills and expenses using your credit card.

Carrying out the transaction is not going to be easy, but with the right tips, you can maximize the benefits without jeopardizing your credit score or falling into a cycle of debt.

Important Tips to Keep in Mind

1) Using a credit card to pay for your mortgage can bring you immense benefits but it could also harm your credit utilization rate which makes 30% of your credit score.

Always aim at paying the credit card balance before the date you receive your account statement. At this point, the card company is yet to forward a report to the credit agency. And so your utilization rate remains at an acceptable rate.

Alternatively, get the limit of your credit card raised. The utilization rate of your card which is calculated as the ratio of the credit balance to the credit card limit can reduce significantly if the card’s limit is increased without increasing your usage.

2) Choose the right credit card depending on your goal. Your choice on a card that offers cash back or miles should depend on your lifestyle and preferences.

For a maximum reward, choose a credit card with a high rate such as Discover it Miles which gives a 1.5x miles reward for every dollar spent. The card holder then gets double rewards at the end of the first year making it higher than the 2.5% processing fee that Plastiq charges.

The benefits of using the credit card should outweigh the costs involved. Also, you should ensure that the terms and conditions of the credit card allow the transactions you intend to make with your card.

3) One sure way to dig yourself into debt is through uncontrolled spending using a credit card. As much as you are reaching for some benefits by increasing your card usage, you should have a clear plan on how to clear your balance before the due date.

In addition, late clearance of your credit card balance could result in the loss of any rewards earned and the interest charged becomes an extra expense.

In Conclusion

Using your credit card to pay your mortgage is not the best move considering that credit cards are debt, nonetheless, it is possible using third-party bill payment services and manufactured spending.

The process requires keenness, cost calculation and comparison, and research on the most rewarding credit card company. You also need to ensure that processing the payment does not affect your credit score.

Use your credit card for a large mortgage transaction only when the benefits such as rewards, avoiding late payment fees and preventing foreclosure, outweigh the processing cost of using third-party services and the risk of card cancellation as a result of non-adherence to terms and conditions of the credit card company.

By following the tips provided, paying for your mortgage using your credit card can reap you some juicy rewards while enabling you to make timely payments even when you are short of funds.