The mortgage is coming due on Friday, your bank account is feeling budget-crunchy, and there’s a ton of space on your credit card. Or at least you wonder, “Is it possible for me to use my credit card rewards to pay my mortgage and still come out ahead?” The payment may be made at times but not directly. The larger issue is whether it makes sense to transfer a low rate mortgage to the high cost of credit, or whether it’s a good points play or a very expensive month.
Can I Pay Mortgage With Credit Card Without a Middleman?
Most mortgage servicers won’t allow you to enter your credit card number into the payment website. They usually accept payment via bank transfer, check, direct bank deduction or via other means indicated on your monthly bill.
A mortgage servicer is the firm that gathers and transmits your payment. This could be the lender that initially issued the mortgage loan, but the names are not always the same as mortgages can be transferred.
Some borrowers use a third party payment service if direct card payments are not available. The loan servicing company bills the credit card, and a bank transfer or paper check is sent to the mortgage servicer. The success of the transaction may rely on the payment company, card network, card issuer and mortgage servicer. A technique that worked in the previous year can vanish once a card network updates its guidelines.
Make sure that mortgage payments can be made with the specific card before using any service. If you’re paying “almost any bill”, don’t assume that all your bills are for home and credit card payments.
How Third-Party Fees Change the Math
This little miracle isn’t offered by the payment processor for free. Typically, card processing fees are a percentage of the mortgage and one card processing company is currently promoting a card fee of 2.99%.
Let’s say your monthly mortgage payment is $2,400. A 2.99% processing fee adds $71.76, bringing the total card charge to $2,471.76. Do that each month and you’ll be paying $861.12 a year simply to change the way you pay.
In order to work around this issue, run the payment through a mortgage calculator and compare the fee to the rewards.
The fee is also added to your credit card debt. If you are unable to pay the full $2,471.76 on the card’s due date, it is possible that there will be interest charges on the mortgage as well as on the processing fee.
A credit card APR of 24% is approximately equal to a monthly rate of 2%. If someone had $2,471.76 in debt on their card for one month, the interest would be approximately $49, depending on the card’s daily balance calculation. The $2400 payment on your mortgage could have added over $120 in fees and interest before you’ve even reduced the credit card debt.
Credit Card Rewards Usually Do Not Cover the Fee
Rewards make the idea sound good, but not as it really is. An individual who has a 2% cash back card, makes a $2,400 mortgage repayment earns $48. A 2.99% processor fee costs $71.76. If you don’t factor in interest, annual card fees or the value of your time, you come out $23.76 worse off.
Only numbers will be effective if the reward rate is greater than the total payment costs. A card earning 1.5% cannot beat a 2.99% fee. Even if the reward is given for the transaction, it’s a 3% reward, and as a normal purchase, it’s only a break-even if paid in full.
A welcome bonus for new cards may alter the calculation for a limited time. If a card is giving you $750 bonus for spending $6000 in 3 months, what is that?What is a $750 bonus on a card for $6000 spent in 3 months? The processing fees for two $2,400 mortgage payments would be $143.52 and the payments would cover $4,800 of that requirement. Well, if you were already looking for ways to spend the remaining $1,200 then it might be worth doing just as long as the mortgage transactions qualify and you have enough cash to pay the card off on the spot.
A new card or mortgage just to receive a bonus is another story. A $750 reward is not a win if it leaves you with $4,800 of debt at 24% APR.
A Mortgage Payment Could Be Treated as a Cash Advance
The worst shock is realizing that the transaction wasn’t considered a “buy.” The way that the payment is processed and coded can mean that some card issuers may consider some money-like transactions as cash advances.
Typically, cash advances can feature no interest-free grace period, a higher APR, and a separate fee. The CFPB also cautions against cash advance interest beginning on the date of the transaction, instead of the date the statement is due.
Suppose that the fees for cash advances on your card are 5%. If you owe $2,400 per month, it’s $120 right now. Another 30 days on the cash advance at 29.99% interest would be about $59. You’ll have paid approximately $179 to cover one mortgage payment, without factoring in any fee that the payment service charges.
Contact the card issuer prior to the transaction. Discuss how the specific service codes payments, the amount of cash advance allowed and the earning of rewards. A response to a customer service question may be helpful, but the actual statement will be determined by the card agreement and the final coding of the transaction.
Your Credit Utilization Can Change in an instant
A big mortgage repayment could consume a lot of your available credit. Once you have charged the card $2,400, and your card’s limit is $5,000, your card’s utilization is 48% before the processor fee.
Credit scoring models take into account the amount of credit available that you are using. The CFPB urges borrowers to avoid being close to their limits and points out that having a high balance may impact a score even if it’s paid right after.
A large positive balance can cancel out all the work you’ve done to build up your credit score in the past few months.
It is important when you are getting ready to apply for another loan, to refinance your mortgage or to finance a car. Having a temporary score change doesn’t necessarily mean doom and disaster, but it is not a very savvy moment to have a 50% card balance prior to a lender’s review.
If the charge is paid prior to the end of the statement, this could lower the amount reported. The reporting dates are different, though, so it shouldn’t be considered as a sure-fire credit-score hack.
Third-Party Payments Create a Timing Risk
The servicer does not receive and accept the payment of your mortgage until it is paid. It may take some time for a third party company to confirm the transaction, to fund electronic transfers, or to put a check in the mail.
You could still have a late fee if you pay the $2,400 and the card is not received by the mortgagee until after the late fee date. Card receipt is a proof of payment for the processor. Does not automatically mean that the servicer received a timely mortgage payment.
Another reason for a payment being returned is if the account number is incorrect, or if the payment is not made by the delivery method accepted by the servicer, or if the payment is not equal to the full periodic payment. According to the CFPB, servicers can accept partial payments and then keep them in suspense until they receive a sufficient amount of funds to make up the difference.
If you think the payment might arrive late, check what consequences can be expected if you don’t make your loan payment on time, and discuss the matter with the servicer before the payment is due.
Do not use a new third party payment mode, one day before the deadline. Check expected delivery date, account information, refund policy, card treatment and consequences if payment is rejected by the servicer.
When Paying by Card Might Make Sense
The numbers can work in a few very narrow circumstances. You may be executing a valuable welcome bonus, earning rewards that exceed all of the fees you pay or taking advantage of a temporary zero-percent financing promotion and having the ultimate payoff amount in your money.
The term “full payoff amount” is important. If the $2,400 is already in your bank account and the card will be paid out prior to any interest accruing, then you are using the card as a payment device. If funds are not available, then you are borrowing your mortgage payment at credit card rates.
The issue isn’t the card network, it’s the lack of an emergency fund.
If they really do not have cash to pay the mortgage, borrowers should call the mortgage servicer before using a credit card. The servicer will discuss repayment options, forbearance, and/or other assistance, if applicable. After several payments are late, the choices to consider will be fewer.
Mortgage payment is the first thing to consider when preparing a workable budget, before rewards, travel points or cash back come into the equation. The CFPB also suggests establishing automatic payments via your mortgage servicing company or bank where it’s possible.
The Bottom Line
It’s possible to make a mortgage payment using a credit card via a third-party, but typically it’s not worth the reward. The purchase transaction may also lead to an increase in your credit utilization ratio, late payment or it may be considered an expensive cash advance. Only use this method when the entire card balance is paid off in cash and the benefit is obviously greater than all of the costs. If you must use the card for some reason because you cannot afford the mortgage payment, do NOT just drop the housing loan and take on a new one with a higher interest rate without contacting the servicer.
Frequently Asked Questions
May I pay my mortgage directly using a credit card?
Most mortgage servicers do not accept credit cards directly. A third party payment service might be able to charge your card and a check or bank transfer may be sent to the servicer, and there may be different eligibility requirements and charges.
Should I pay my mortgage using a credit card to receive the points?
Usually not. A 2% reward on a $2,400 payment earns $48, while a 2.99% processing fee costs $71.76, leaving you $23.76 behind before interest.
Does it affect my credit score if I pay my mortgage with a credit card?
It can if the charge makes a high reported balance. You are spreading a $2,400 mortgage payment over a $5,000 limit and that will take up 48 percent of the limit, and that will have an impact on your score until the mortgage amount is reduced and reported.
Discamiler:
This article is for general informational purposes only and does not constitute financial advice. Please consult a licensed financial adviser for guidance specific to your situation.
