There can be a lot to consider when it comes to getting a mortgage, including how you pay your mortgage payment. One option that you might be considering is to pay your mortgage with a credit card. Here is some information to help you understand the details of paying with a credit card and whether that is the best choice for you.
Why You Might Pay a Mortgage with a Credit Card
There are several reasons that you might consider paying your mortgage payment with your credit card. The first reason is to make the most of your credit card rewards. By making your payment with a credit card, you could potentially earn rewards or cash back just by paying your mortgage, something you’re already paying. If you don't already have one, you may even consider getting a new credit card that offers specific rewards that appeal to your lifestyle.
Other reasons for utilizing a credit card involve giving yourself flexibility with your mortgage payment. By paying with your card, you’ll make your mortgage payment on time but have the flexibility of choosing when during the month to pay off that balance on your credit card. This payment option may also be considered as a last resort when you don’t have the funds to pay your mortgage and want to avoid a late payment or even foreclosure after a number of missed payments.
Pros and Cons of Paying with a Credit Card
There are pros and cons to consider when it comes to paying your mortgage with a credit card to help you determine if it's the best choice for you.
Pros
- You may be able to earn rewards, points, or cash back with the promotions available on your credit card while making your mortgage payments.
- You may find there is more flexibility in making your payment on a credit card. While your mortgage has a set payment date, you can pay your credit card off or make the minimum payment at any time before your payment cycle ends.
Cons
- You may have to pay processing fees, including a third-party processing fee, in order to utilize a credit card.
- If you don’t pay off your credit card monthly, you may find that payment can cost you a lot in interest charges.
- The balance on your credit card counts towards your credit utilization, which is a ratio that looks at how much of your credit is being used. Building up this balance will push your credit utilization ratio higher and potentially impact your credit score negatively.
- There may be limitations or restrictions for your payment from your credit card issuer or your mortgage lender.
Factors to Consider
There are several factors to take into consideration when it comes to paying your mortgage payment with a credit card.
Lender Restrictions
Paying your mortgage payment with your credit card isn’t always straightforward. This is a debt for debt payment and both mortgage lenders and credit card issuers may have regulations regarding these types of payments. Not all mortgage lenders accept card payments, so it’s important to contact them to verify if they will accept the payment, if there are any associated fees, or if they require a third-party payment service.
Once you know that the mortgage lender will allow you to pay with a card, you’ll need to verify that your card issuer will also allow you to make those payments. Some credit card issuers do not allow their cards to be utilized for mortgage payments, while others only work with certain mortgage lenders or have other restrictions.
Financial Habits and Interest
Your credit card habits will have an impact on determining if making your mortgage payment with your card is worth it to you. If you plan to carry the balance of the payment on your card, that mortgage payment may then build up interest over time. However, if you do pay off your credit card regularly, those rewards could pay off for you.
Cost vs. Benefits
The costs associated with making a credit card payment towards your mortgage could outweigh the benefits of the payment. The credit card interest and fees can add up and leave you with a hefty bill to pay, potentially outweighing the pros or rewards of paying with a card. Additionally, this cost could put you even further off track on getting caught back up with your mortgage payments if you have fallen behind.
Alternative Options
If the option of paying your mortgage with a credit card doesn’t fit what you’re looking for, there are alternative options to help with your budget.
HELOC
A home equity line of credit, or HELOC, is a line of credit that uses the equity of your home as collateral. If you hold equity in your home, this can be a great opportunity to access those funds and use them to consolidate debt, pay off credit cards, or even for home improvement projects.
Home Equity Loan
A home equity loan also allows you to tap into the equity of your home. These are typically utilized for large expenses with an established price, like paying off debt or completing a home improvement project. You’ll receive the funds in a lump-sum rather than as a line of credit like a HELOC.
