Making your monthly mortgage payment with a credit card sounds like a clever strategy, but even in times of “loose money,” it’s a financial maneuver beneficial to only a few. In today’s times? Well, money is anything but loose.
Back in the bubble era before the “Great Recession,” some creditors made it easy. Bank of America, for example, issued credit cards through a wholly-owned subsidiary named FIA. This plastic offered free bill payments, not specifically created for mortgages, but many would use the service to pay their mortgages on credit. When you realized that no points or rewards were given on FIA bill payments, however, there wasn’t much point in using it for your mortgage.
Back then, American Express cardholders also could pay any prime level mortgage from American Home Mortgage, but it cost a one-time fee of $395. If you paid your AmEx bills in full and on time, this move could make some sense, especially considering the high cash back offered on the AmEx Blue Cash card.
Four questions to ask
But first things first. Before you even start analyzing this strategy, experts on consumer credit say, there are a few questions you need to ask yourself. If you can’t answer yes to them, it’s probably best to pay your mortgage the traditional way.
1. Will I be able to pay off the balance in full each month? Monthly interest charges will mount quickly with a big debit like a mortgage payment. The interest on your home mortgage can be written off on your taxes, but any additional interest charges you accrue on your credit card cannot. If you carry a balance from month to month, the convenience will be too costly to be worthwhile.
2. Do I always pay all my bills on time? Even one or two missed or late payments can cause interest rates to spike, and may cost you hundreds of dollars in interest.
3. Will making mortgage payment with a credit card negatively affect my credit score? If your mortgage payment will eat up half or more of your available credit, your credit score may take a hit.
4. Will I use the rewards? If you let your airline miles sit and you can’t remember the last time you redeemed a gift card, it’s probably not worth it to sign up.
As a matter of fact, while paying a large, recurring bill with a credit card sounds like a smart way to maximize points, cash back or frequent flier miles, you’ll soon discover that your options are extremely limited and are unlikely to pay off.
Mortgage servicers generally do not allow borrowers to make direct payments with a credit card. You may be able to indirectly pay your mortgage if your credit card offers a bill pay service, but these services usually limit cardholders to a set list of potential payees which is pretty unlikely to include your mortgage servicer.
Is it possible to make a mortgage payment with a credit card?
Theoretically, if there were no fees associated with paying your mortgage this way and you pay your credit card bill in full and on time, you could take advantage of the “float,” the lag time between when you charge your mortgage payment and when your credit card bill is due. The float effectively lets you keep your mortgage payment in your bank account longer and earn an extra few weeks’ worth of interest.
In our current low-interest rate environment, however, the float isn’t much help in terms of interest earned. It’s only in a high-interest rate environment, particularly if your mortgage payment is large, that interest earned during the float would add up significantly.
Times have changed
Unfortunately, virtually all of the pre-“Great Recession” options for executing the strategy of paying your mortgage by credit card are now gone. The Bank of America FIA bill pay choice was canceled back in 2010, and the AmEx one-time fee payment has disappeared as well. Face it, before the real estate bubble there were many viable options to make credit card payments on mortgages. But post-financial meltdown, all that has changed.
You can still find third-party services that will let you pay your mortgage using a credit card. But, the fees they charge are somewhere in the 2.5 to 3 percent neighborhood. That’s going to more than offset any potential benefit from earned rewards. Obviously, if their fee is 3 percent of your mortgage and your credit card pays 1.5 percent cash back, you’ll lose money by paying this way.
However, there is another option that lets you combine mortgage payments with credit card rewards. Some lenders offer a cash back credit card that automatically applies your cash back to your mortgage principal. This automated savings feature ensures that you put your credit card rewards to good use instead of spending it at the mall or their shopping portal.
If you miss a credit card payment or carry a balance, however, the credit card won’t actually help you. The interest and late fees you’ll pay will far exceed your cash back rewards.
You’ll also have to consider any fees involved the transaction. Some cash advances can cost 4 percent of the total advanced, which may offset any savings from the switch. And paying late just once may hike up interest rates to a higher level than the mortgage was at the outset.
A final consideration is using PayPal to facilitate a mortgage payment. But, it’s likely to be a losing proposition because even the best cash reward credit cards can’t compensate you for the 3 percent in fees that PayPal charges. And PayPal’s security issues are a whole separate concern.
PayPal might still be a workable strategy if you’re using it because you need financing and rewards aren’t a priority. But if financing has become that critical, it might be time to think bigger than trying to save a little on your monthly mortgage payments, and sit down for a talk with your lender.
What you may be looking for are some ideas on refinancing your mortgage, restructuring the equity and debt components of your obligation, or even a more general debt consolidation strategy.
If are you considering refinancing, see the latest interest rates below.