Credit cards come in handy for a variety of purchases, and some companies offer appealing rewards programs to incentivize spending. While you might be tempted to maximize your rewards points earnings at every turn, you can’t use plastic to pay for everything. For instance, most mortgage lenders don’t allow you to make mortgage payments with a credit card.
In this article, we’ll discuss the reasons why this is the case. We’ll also discuss a few workarounds that may allow you to pay your mortgage with a credit card, as well as the serious potential risks of doing so.
Most lenders won’t let you pay your mortgage with a credit card because it can lead to a cycle of debt that’s difficult for many borrowers to escape. When a borrower uses a credit card to pay their mortgage, they’re essentially transferring debt. If this pattern of taking on new debt to pay off existing debt becomes too much for the borrower to sustain, they may end up defaulting on their mortgage. This is, of course, a serious situation for any homeowner.
The above risks to borrowers are particularly acute with credit cards, because interest rates on credit cards tend to be much higher than mortgage rates.
While mortgage lenders generally don’t allow borrowers to pay their mortgage with a credit card, third-party processors such as Plastiq will make mortgage payments for a fee. For example, Plastiq’s fee for credit card payments is 2.5%.
Before you jump through hoops to use a third-party service, you should check and see if your lender will allow you to make direct payments using a credit card. As mentioned above, it’s not likely, because lenders don’t want to have you take on additional debt to pay off existing debt.
Even if the lenders do make a credit card payment option available, you may run into a case where the card issuer doesn’t let you make the mortgage payment on the card as part of their risk mitigation strategy.
At this point, we should clarify some vocabulary. The issuer is the creditor you got the card from. Services like Visa® and MasterCard® are payment processors that deal with the technological infrastructure associated with making the system work.
Finally, if you turn to a third party, it’s important to note that not every credit card issuer works with every service that facilitates this. For instance, although MasterCard and Discover® support Plastiq, Visa and American Express® don’t allow their cards to be used on the platform.
Whether mortgage payments can be made with a credit card is not an uncommon question that mortgage servicers get once people close on their loans. The reason for this is that in the right situation, credit card payments can benefit the consumer. Let’s take some time to acknowledge the potential benefits:
However, you’re going to want to do some math. It doesn’t make sense if you have to use a third-party platform whose fee represents more of a percentage than you’re getting back in rewards.
If you’re paying through a third party, it’s important to consider whether the combination of the rewards you learn with every purchase plus the enticement of the bonus outweigh the additional fee you’d pay for making your mortgage payment with a credit card.
While there can be benefits to making payments with the credit card, if you don’t ask the mortgage lender, the card issuer and the processor or third-party payment processor the right questions, there are some real issues that could come up.
Usually, mortgage companies don’t let you make your payment with a credit card, because rolling existing mortgage debt into a high-interest credit card may introduce financial liability for both the lender and the borrower. If you want to get around this, you can use a third-party service, but they charge fees – meaning you’ll need to determine if the benefits outweigh the costs.
Good credit habits are key to bettering your financial situation. Here’s some more info on establishing good credit.
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