Should I pay my mortgage with a credit card to earn credit card rewards?

Do you want to pay your mortgage with a credit card? It might be possible, but it will probably cost you. How do you do it? What’s the cost? And when is it worthwhile? This article will answer all your questions about charging your monthly mortgage payment.

Why Pay Your Mortgage With a Credit Card?

The four reasons people might consider making their monthly mortgage payment with a credit card are these: 

1. To earn credit card rewards
2. To hang onto their cash and bank a couple of extra weeks’ worth of interest
3. To buy a couple of extra weeks to pay the mortgage without making a late payment to the mortgage company
4. To avoid foreclosure at all costs

These are all valid reasons to want to pay your mortgage with a credit card. The first three of these reasons might give you a slight financial edge in the long run. The fourth could be incredibly destructive. We’ll look at each option in more detail below, but first let’s explore the logistics of paying your mortgage with a credit card.

Third-Party Payment Services

Many creditors will not accept credit cards to pay off debt, and that includes mortgage lenders. They know that doing so would mean letting customers trade one form of debt—a relatively low-interest and sometimes tax-deductible form—for another with higher interest and is not tax deductible. Politicians, regulators, and the media would have a field day decrying such a practice.

Enter third-party payment processors. These companies will let you use a credit card to pay almost any entity. While the competitive landscape is always evolving, the most well known and seemingly only player that processes mortgage payments is Plastiq, which charges a 2.85% transaction fee. You might be able to find a referral code online that gives you a few hundred dollars in fee-free transactions, but that will only get you so far—unless you find a way to earn more free transactions by referring others yourself.

Paying your mortgage with a credit card has some restrictions—even with Plastiq. The terms and conditions prohibit you from using a Visa or American Express card to pay your mortgage through Plastiq. Considering other payment processors have come and gone in the past, Plastiq may not be around forever, or it may not always be an option for making mortgage payments. Mastercard and Discover could stop allowing mortgage payments through the service altogether. Conversely, more options could become available in the future to pay your mortgage with a credit card, perhaps with more-competitive fees or new perks.

Should You Pay Your Mortgage With a Credit Card?

Let’s walk through each of the four reasons you might want to pay your mortgage with a credit card and see whether they’re good ideas or not.

To earn rewards

Credit cards have two main types of rewards—sign-up bonuses and ongoing rewards. A sign-up bonus might give you $300 cash back for spending $3,000 in your first three months as a cardholder. Ongoing rewards might give you 2% back on every purchase, including the purchases you make to earn the sign-up bonus.

Let’s say your mortgage payment is $1,000. If you incur a 2.85% fee to make that payment, you’re losing $28.50. Still, you might be able to come out ahead in one of these scenarios:

• Your credit card offers ongoing cash back (or the equivalent in points or miles) of 3.0% or more on this payment.
• Your credit card company doesn’t categorize the third-party payment processor’s charge as a cash advance. Cash advances generally incur fees and always begin accruing interest immediately, with an average interest rate of 24.8% in 2020, according to a CreditCards.com survey. Read the fine print in your credit card agreement to find out your card’s conditions about cash advances. If everything looks good, go ahead and make a small test purchase through the payment processor before making your full mortgage payment.
• You’ll earn a sign-up bonus worth more than the processing fee, and you wouldn’t be able to earn the sign-up bonus through your usual spending. This might be the most compelling reason to pay your mortgage once or twice with a credit card.
• You’ll earn some other credit card benefit from the purchase that’s worth more than the fee, and you wouldn’t be able to earn this benefit through your usual spending. Benefits you might be trying to earn include airline status, hotel status, a free hotel night, or a free airline ticket for a companion.

To earn interest

If you don’t carry a credit card balance, you get an interest-free grace period of around 21 to 25 days between when your credit card statement is issued and your payment is due. Over the course of a year, taking advantage of this grace period by keeping your cash in savings—where it earns interest—until your credit card due date might earn you a few extra bucks. It’s not a bad thing to do with purchases you were going to make anyway, as long as you are never late to make a payment and never carry a balance.

With a 2.85% processing fee to pay your mortgage with a credit card, however, you’re not going to earn enough interest in your savings account to come out ahead. The best high-interest savings account in 2021’s market only pays 0.7% interest. You’re not going to even come close to earning that fee back with 25 extra days of interest.

To avoid a late payment

Your mortgage payment is usually due on the first of the month. However, many lenders give borrowers until the 15th to make their payment without a late fee. Once this grace period ends, lenders impose hefty late charges (check your statement to see how much), but a late payment won’t actually be reported to the credit bureaus until it is 30 days past due.

If you need more than the 15-day grace period to pay your mortgage but want to avoid a late fee and credit score damage, you could pay your mortgage with a credit card on the 14th to buy yourself about 25 more days to make your mortgage payment. You could come out ahead if the payment processor’s fee is less than your lender’s late fee and if you pay off your credit card balance in full by the due date. If you don’t, you could end up in worse financial circumstances by paying credit card interest, depending on how long it takes you to repay what you owe.

To avoid foreclosure

An extension of the idea above is to pay your mortgage with a credit card to avoid foreclosure. It’s understandable to want to do anything possible to remain in your home. Nevertheless, if you’re so far behind on your mortgage payments that you’re facing foreclosure—a process that your lender can’t initiate until anywhere from three to six months after your late payment, depending on the state in which you live—your financial circumstances are probably so tenuous that adding credit card debt to your problems is not in your best interest. Talking to your lender and a housing counselor about a plan to avoid foreclosure is a better idea.

Final tip: Consider your credit utilization

Another factor to consider is the effect of credit-card mortgage payments on your credit utilization ratio. According to FICO, which generates the credit scores that most major lenders use, credit utilization (the percentage of your credit line that you’re using at the time your statement is issued) accounts for 30% of your credit score. If you don’t want the fact that you’re paying your mortgage via credit card to affect your credit utilization ratio, you will need to pay off your balance before your statement is even issued—not just before your statement due date.

That said, if you have a high credit line and you only use a minuscule percentage of it—say, less than 10%—you don’t need to worry about paying your balance before your statement comes out. Such a low credit utilization ratio shouldn’t harm your score.

An Example of Paying Your Mortgage With a Credit Card

After reading a headline like “How We Earned $2,000 in Credit Card Rewards Paying Off Our Mortgage,” who wouldn’t want to pay their mortgage with a credit card? It’s a true story that personal finance blogger Holly Johnson pulled off—and she used the rewards to help fund a Mediterranean cruise for her family of four.

However, she was only able to achieve it because her platform as a high-profile blogger allowed her to earn thousands of dollars in free Plastiq transactions by referring her readers to the service. Most of us can’t do that.

The Bottom Line

It’s only under limited circumstances that the average person might benefit from charging mortgage payments to a credit card. First, you’ll need to find a third-party payment processor that lets you use your credit card to pay your mortgage company. Second, you’ll need to earn credit card rewards that exceed the payment processing fee. Third, you’ll need to pay your credit card balance in full, ideally even before your statement is issued, not only to avoid paying interest but also to avoid affecting your credit utilization ratio and possibly hurting your credit score. If you can do all these things, paying your mortgage with a credit card might pay off.

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