Tempted to make your mortgage payments with a credit card because it sounds like a way to send your rewards points through the roof?
Or maybe you feel the need to make a payment or two on your credit card because your household budget is under pressure from inflation. You would not be alone.
The end of the CARES Act mortgage forbearance in June 2021 made it difficult for some people still financially impacted by the pandemic to make their payments. According to a May release from the Federal Reserve Bank of New York, about 24,000 people had a new foreclosure rating added to their credit reports during the first quarter of 2022, compared to just 9,000 people in the fourth quarter of 2021.
The more you dig into the idea, the sooner you’ll see that making a mortgage payment with your credit card rarely makes financial sense.
Is making a payment on your credit card worth the risk of possibly charging that amount to your credit card balance?
Ultimately, it’s a numbers game. You will need to decide if the points you are pursuing outweigh the potential costs. That’s if your mortgage lender is even willing to accept.
Here are six reasons why paying your mortgage with a credit card is probably a failure.
1. Your mortgage lender probably won’t allow it.
Most mortgage services do not allow borrowers to make payments with a credit card.
Policies vary. But lenders generally prefer to take your money rather than a debt transfer.
2. Your credit card may not allow it either
Visa, Mastercard and American Express have no problem with cardholders making mortgage payments and collecting rewards points from transactions.
However, Bank of America generally does not allow mortgage payments with the credit cards it issues.
3. You can use an intermediary, but it will cost you
You can circumvent objections from your mortgage lender or credit card by using a third-party payment provider as an intermediary.
These services accept your credit card payment and then send a check to the mortgage lender. And, they charge a processing fee for the service – usually up to 3%. If your monthly mortgage payment is $1,000, the charge would be $30.
4. Your credit card may also incur charges
Before using your credit card to pay your lender or a third party, you must confirm with your card issuer that payment will not be made as a cash advance.
Cash advances come with their own fees and a higher interest rate. Credit card purchases typically have an APR of 12% to 20%. The APR on cash advances can reach up to 25%.
5. Don’t forget interest and other fees
If you are unable to pay the mortgage charges charged to your credit card each month, you will also have to pay interest. And if you load up your card with debt, you might find it hard to get rid of it and hurt your credit score.
If you’re late with a card payment, you’ll trigger additional charges and risk further hurting your credit score.
6. Often the math just doesn’t work
The best opportunity to use mortgage payments to leverage rewards is to use a credit card’s initial sign-up bonus. Many cards offer tempting bonus points if you spend a certain amount in the first few months.
Rewards can be worth up to 30% of what you spend. This could be more than enough to cover various service charges and higher interest. But most rewards programs offer daily returns of 2% or less.
If your credit card usage returns are likely to be outweighed by the costs, put your credit card back in your wallet and continue making your mortgage payments some other way.
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— With files by Samantha Emann
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.