Many people prefer making payments with the credit card. It appears to be easier and simpler. The bills will be paid on time and you will get reward points in return. Considering these points, it seems lucrative to pay the mortgage installments with a credit card.
Is there any catch?
Yes, there is! Many lenders don’t accept debt-for-debt payments and you will end up paying more in mortgage than you are required to pay. Let’s find out the downsides of paying the home loan with your card:
Lender companies don’t accept it.
The truth is, you should check with all the three parties, the mortgage lender, card network, and card issuer, to ensure that you can actually make the payment. For example, Visa and MasterCard allow using their debit and credit cards for mortgage payments. You can do it if you are a Wells Fargo credit card holder but Bank of America does not offer this feature for their credit cards. Also, not all mortgage lenders accept a credit card payment and even if they do, they want it to be processed by a third-party service.
These three parties may also have their own set of rules. You have to comply with each of them to get the privilege.
You’ll end up paying more.
If you are required to process the payment through a third-party service, you have to pay them at least 2% of the total amount. So, the convenience fee will be $20 for every $1,000 mortgage installment.
This extra fee is a burden when you are paying directly to your lender. The credit card payment charges interest, which is not only the interest on the mortgage but also on the card. All these charges add up fast and make you pay a lot more than you are supposed to.
The rewards hardly outweigh the fees.
What’s the best draw for paying the mortgage with your plastic? Earning reward points. The reward rates vary from one company to another and it barely exceeds the processing fee charged by the third-party service or the interest taken by the lender company.
However, you can take the advantage of the card’s sign-up bonus. In most cases, the company offers a huge bonus upon a minimal spending for the new users. You can make a one-time mortgage payment to grab that reward.
Does it make financial sense to pay the mortgage with a credit card?
The simple answer is ‘no’. You can take the opportunity for a one-time payment to grab the sign-up bonus such as 50,000 points for spending $3,000 in first three months. In that case, the fees charged by the third-party service and the lender company won’t bother that much. However, making regular monthly installments with your credit card will not worth it.
Paying from the credit card can be worthwhile if:
- The lender does not charge any interest on the credit card payment
- It is possible to pay off the card immediately after paying the mortgage (so that the card issuer can’t charge an interest)
- You get reward points
You should not use the credit card for paying the mortgage installments if you get none of these perks.