Paying Your Mortgage With a Credit Card – Learn the Pros & Cons!

Navigating the world of personal finance can be like navigating through a maze with no map. One frequently asked question is, “Can you pay for your mortgage with a credit card?” While the answer is a simple yes, this choice necessitates recognizing both the potential benefits and drawbacks.

This blog post looks at the financial benefits and drawbacks of using credit cards to pay for a mortgage, as well as what other options you have. So, let’s begin!

How to Pay Your Mortgage Using a Credit Card

Paying your mortgage with a credit card might sound like a financial tightrope walk. But it can be navigated smoothly with the right strategies, such as the following:-

• Convert Gift Cards to Money Orders

  A less common way is to turn credit card gift cards into money orders. You can buy gift cards with your credit cards and then spend them in stores that accept money orders. However, this method is not as simple and frequently involves considerable risks and expenditures.

• Use a Third-party Service

  One typical method to pay your mortgage using a credit card is to use third-party services. These services allow you to pay your mortgage with a credit card. They send a cheque to your mortgage lender. However, it is critical to consider the accompanying fees, which are roughly around 2-3% of every transaction.

  Are you thinking about how to pay the mortgage with a credit card without fees online or offline? Well, there is a way out! To avoid fees altogether, consider setting up a balance transfer to a credit card with a 0% introductory APR. This can give you a reprieve on interest while you manage your mortgage payments.

Advantages of Using a Credit Card for Mortgage Payments

The below-mentioned advantages of using a credit card for mortgage payments may surprise you. Check them out!

• You Get Rewards

  Credit card issuers frequently provide points, cash back, or vacation perks for each dollar spent. For example, if you had a credit card with a 1.5% cash-back rate and a $2,000 mortgage, you might earn $30 per month. Over a year, this amounts to $360, which could be better spent or saved elsewhere.

• Opportunity to Earn Interest

  Paying your mortgage with a credit card allows you to earn interest on your cash reserves. Suppose your credit card has a grace period, and you pay it off before the due date. In that case, you might store the money in a high-yield savings account and earn interest instead of immediately transferring it to your mortgage lender.

  For example, if your savings account earns 2% interest and you maintain $2,000 in it for a month, you can earn around $3.33 while waiting to pay your mortgage.

• Prevention of Foreclosure

  In times of financial hardship, using a credit card to make mortgage payments may help you escape foreclosure. If you are struggling to find liquid cash, a credit card may be a temporary option that offers the finances required to make timely payments.

  These payments help you avoid the negative effects of missed payments, such as foreclosure, which can seriously harm your credit score.

• Financial Stability

  Life may be unpredictable, and payments might occasionally fall through the gaps. Using a credit card to pay your mortgage can help you avoid late fees and penalties, provided you know your payment will be processed on time.

  If your income fluctuates or you have unexpected needs, mortgage payments through your credit card can greatly help you retain financial stability.

Problems of Paying a Mortgage With a Credit Card

Some barriers may prevent you from utilizing a credit card to pay for your mortgage. For example, a credit card payment must be approved by your card network, card issuer, and mortgage lender. Each entity has its policies regarding mortgage payments.

If you don’t check with all these parties to confirm that your payment is going to be processed, your mortgage payment might get delayed or refused altogether. This could result in late fines or, worse, a drop in your credit score.

Risks of Paying Your Mortgage With a Credit Card

While using a credit card to pay for a mortgage may by now appear to be a simple alternative, it is not without the following risks.

• Impact on Credit Score and Credit Utilization Ratio

  Using a credit card to make a large mortgage payment might considerably raise your credit utilization ratio. It is the percentage of your overall credit limit that you’re using. This ratio accounts for 30% of your credit score, and financial experts generally advocate keeping it under 30%.

  If you use a big portion of your credit limit for your mortgage payment, it may lower your credit score. A low credit score or rating can make future loans more difficult to obtain and potentially cost you more in interest rates.

• Interest and Transaction Fees

  The transaction costs connected with third-party payment providers can accumulate over time. For example, suppose you make a $2,000 mortgage payment with a third party that charges somewhere around a 2.80% transaction fee. In that case, you incur a $57 fee each time. In a single year, that amounts to $684 in fees.

  Moreover, if you are unable to pay your credit card bill on time, your card issuer’s late fees might increase your financial burden.

• Debt Trap

  If you cannot pay your credit card account in full, you are charged interest, compounding your debt. The average credit card interest rate is currently over 16%, which can quickly outweigh any initial gains from using your credit card.

  The longer you delay returning the charge, the more difficult it becomes to manage your overall financial commitments, and you may find yourself trapped in a debt cycle.

Other Options Instead of Employing Credit Cards to Cover Your Mortgage Payments

There are alternatives to explore that might help you manage your mortgage payments more effectively. They are:-

• Refinancing of Loan

  If your financial situation allows, refinancing your mortgage may result in lower interest rates or conditions that fit your current financial requirements. Lowering your monthly payment helps ease financial stress without resorting to credit cards.

• Periodic or Extra Payments

  Another option is to make biweekly payments instead of monthly installments. It is splitting your monthly payment into two results in an extra payment each year. It can significantly reduce the total interest paid over the life of the loan.

• Automatic Bank Transfers

  One of the simplest and most effective ways to ensure on-time mortgage payments is to set up automated transfers from your bank account. This technique eliminates the chance of late fees and lets you budget your money more effectively.

  Finally, while paying your mortgage using a credit card may appear to be a good plan, you should carefully examine the pros and cons. The prospect of collecting incentives and avoiding late payments may be appealing.

  However, the risks, such as exorbitant fees, bad effects on your credit score, and the possibility of getting into debt, should not be underestimated.

  As you continue your financial journey, keep in mind that making informed decisions can lead to a better financial future.