Paying your mortgage with a credit card is not as straightforward as pumping gas for your car or buying groceries. Most banks that offer mortgage lending services will not accept credit card payments on those mortgages. But, with a workaround, it is still possible to use a credit card.
Third-party services are often eager to make some money off of your urgency. Online services like Plastiq or TIO offer a practical solution with a nominal fee around the 2.5 – 3.0% mark. Essentially you will pay the third party with your card, and then they will pay the mortgage company with an ACH or electronic check.
Why Banks Don’t Accept Credit Cards Directly
There are a few reasons that most banks don’t allow consumers to pay mortgages with a credit card. Generally speaking, incurring high-interest credit card debt on a lower interest mortgage debt doesn’t make a lot of sense. Allowing this practice can lead to higher debt-to-income ratios and an increased risk (to the bank) of default.
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It is easy to see why banks and mortgage companies would not want to facilitate a practice that would hurt their business in the long run. Plus, credit card transactions come saddled with processing fees for the servicer. Most banks do not want to pay these fees on transactions that may hurt their business.
When it Makes Sense to Pay a Mortgage with a Credit Card
At first glance, it may seem like an awful idea to pay a mortgage with a credit card. But sometimes it can make more sense. In a pinch, to manage a temporary cash-flow problem, you may want to float a mortgage payment on a credit card. Or, financially sturdy individuals who wish to take advantage of a specific rewards offer may need the dollar amount of a mortgage payment to qualify.
If these scenarios sound like your situation, then some workarounds can allow you to make a mortgage payment with a credit card. For everyone else, the hassle (and fees) are likely not worth the effort.
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What to Consider Before Paying a Mortgage with a Credit Card
Paying a mortgage with a credit card can seem like an easy fix for many cash-strapped individuals trying to juggle their debts. This can be a feasible solution if the problem is temporary and does not incur long-term, high-interest debt.
Added Fees and Interest-Incurred
If you are trying to float a cash flow issue, look at the added costs of putting the transaction on a credit card. You will pay processing fees of around 3.0% to the third-party facilitating the payment, plus any credit card interest incurred. You are effectively using higher-interest debt to pay lower interest debt, and there may be alternatives available through your mortgage lender that will cost you less.
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If you are trying to float a cash flow issue, look at the added costs of putting the transaction on a credit card. You will pay processing fees of around 3.0% to the third-party facilitating the payment, plus any credit card interest incurred. You are effectively using higher-interest debt to pay lower interest debt, and there may be alternatives available through your mortgage lender that will cost you less.
If you are trying to take advantage of a credit card offer, weigh the reward against the fees. Most recurring credit card offers are lower than the amounts you would pay in processing fees and just don’t make sense. But a high-value sign-up offer could be a compelling offer. High rewards offers typically have high monetary thresholds, and a mortgage payment — or two, can really help meet those requirements.
Impact on Credit Score
Adding a high balance to your credit card account will drive up utilization rates and hurt your credit score. If you don’t plan to make a significant purchase soon and you can repay the debt quickly, the effects may be temporary.
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Consider alternative options available through your lender to delay payments which may have a lesser impact on your credit score compared to high credit card utilization rates. Or, try requesting a credit limit increase before making the transaction.
How to Pay a Mortgage with a Credit Card
Once you have weighed the pros and cons and made your decision, it is time to get down to the details and find out how to actually make the magic happen. In order to pay a mortgage company with a credit card, you will need a third party.
- Choose a third-party service like Plastiq or Venmo.
- Calculate the fees based on the servicer and your payment amount.
- Choose a Credit Card (based on offer, available balance, or interest rate).
- Sign up for the third-party account and provide your mortgage and credit card details.
- Hit go and make the magic happen.
- Get busy taking care of that newfound credit card debt right away.
If an online service doesn’t meet your needs, you can also utilize prepaid gift cards or cash advances to convert credit funds into cash funds. Use the cash advance funds to pay directly from your bank account or convert gift cards to money orders. Both of these options also come with certain fees and limits.
The Bottom Line on Credit Cards and Mortgage Payments
Most mortgage companies choose not to commingle the servicing of their loans with the opportunity to increase debt and decrease the creditworthiness of their borrowers. As a general rule of thumb, paying a mortgage with a credit card is ill-advised.
There are third-party services that make it possible, but the risks (and fees) are high. A $2500 mortgage payment will incur a processing fee of around $75 using typical services. This fee is in addition to any interest accrued. New card offers that have big rewards and zero-interest periods are the most common reasons that some people will choose to forego financial experts’ advice and use these workarounds.
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