Paying mortgage with credit cards: Is it a good idea?

Here are some factors you need to consider

Paying mortgage with credit cards: Is it a good idea?

There are scenarios in which paying your mortgage with a credit card can be a good idea, especially if the rewards you earn outweigh the fees. There are, however, other cases in which using your credit card to pay off a mortgage can put you on a slippery slope financially (see: using a credit card to avoid foreclosure). Here are some important things to consider.

Is it really a good idea to pay off your mortgage using a credit card?

The short answer is: Technically, yes. But it can be a difficult situation to navigate. Whether or not it is a good idea to pay off your mortgage using a credit card may depends on whether the rewards you can earn by doing so outweigh the fees. If paying off your mortgage using your credit card does not damage your budget or your credit, you can consider it.

On the other hand, third-party payment providers could accept your credit card payment before cutting a check to your mortgage lender—but the convenience fee might be too much to make it worth it for you. Additionally, if you are already spending a big part of your credit limit, or if most of your money is already tied up in bills for the month, paying off your mortgage using a credit card is not the best move. Doing so could actually damage your credit score and strain your budget even further over the long term if you fail to repay your credit card bill in full.

A deciding factor for you might be whether you have a big enough credit line to take on your housing payment plus all of the other expenses that you usually use your credit card for. Something else to consider are the possible credit card rewards you may earn.

When should you use your credit card for mortgage payments

You should use your credit card to pay off your mortgage if you can gain advantage by doing so. Here are some non-mortgage-related benefits to using your credit card to pay off your mortgage:

Earn rewards. When you are pursuing a credit card welcome bonus that you could not otherwise earn, it may make sense to pay your mortgage with a credit card. It might also make sense if you are earning a higher rate of rewards than the card processing fees you will be required to pay.

Consider fees and interest. If you want to catch up on your bills or spread out your monthly payment, it does not make the most sense to pay your mortgage with a credit card. You might also be putting yourself on thin ice financially if you transfer secured debt at a lower rate (average mortgage) to an unsecured credit card charging a higher interest rate.

Avoid late payments. It is best to ensure you have the money to pay your credit card bill every month, because if you let it linger too long, the interest begins to pile up and you lose whatever benefits you may have gained. Not only does this put your mortgage at risk, it can also wreak havoc on your credit.

Avoid foreclosure. Using your credit card to avoid foreclosure is definitely not recommended, since adding credit card debt on top of missed mortgage payments is not likely to improve your situation.

Factors to consider when paying off mortgage using credit card

Paying off your mortgage using a credit card might not be worth it for your credit, your budget, or both—even if you can figure out a way to do so. Before choosing that option, here are some factors to consider:

Fees vs. rewards. Earning rewards on your mortgage bill—which is usually significant—can make it tempting to pay off your mortgage with a credit card. However, your earnings may be eliminated by the price of a third-party processing fee. For example, you will end up paying $71.25 extra every month if you have a mortgage payment of $2,500 and you are paying a 2.85% processing fee.

Cost of interest. If you fail to pay your credit card bill off completely each month, you will incur costly interest charges by putting your mortgage payment on a credit card. The long-term costs of increasing ongoing balances would certainly cancel out any rewards you might earn from using your credit card.

Effect on your credit scores. Using your credit card to make mortgage payments could potentially use a significant portion of your credit limit and increase your credit utilization ratio, which compares your total credit limits with your total debt. Your credit utilization ratio significantly affects your credit scores. Since you want to ensure your ratio is lower than 30%, making mortgage payments that cost thousands of dollars will likely have a negative impact.

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