Why You Shouldn't Pay Your Mortgage With A Credit Card

Using your credit card to pay your mortgage bill is ill-advised due to the high fees involved, and the fact that consumers have virtually nothing to gain the process. Services that allow you to make the payment will typically charge fees that are much higher than any rewards you may gain. Furthermore, the transaction may go through as a cash advance, which comes with its own slew of fees and extra charges.

Downside of Paying Your Mortgage With a Credit Card

Though some exceptions exist, we would generally recommend you never use a credit card to pay for your mortgage. There are a few instances where you may come out ahead, even after all the fees are assessed. However, when that happens there is almost always a less costly alternative.

We'll only cover here paying your monthly payments using a credit card. Paying your downpayment is impossible, and strictly prohibited by the Fannie Mae selling guide, section B3-4.3-16. "Fannie Mae permits certain costs that must be paid early in the application process, such as lock-in fees, origination fees, commitment fees, credit report fees, and appraisal fees, to be charged to the borrower’s credit card [...] Under no circumstances may credit card financing be used for the down payment."

Fees Outweigh Rewards

Unless you happen on some sort of short-lived promotional offer, most services that enable you to pay your mortgage with a credit card charge high fees. On average, companies will charge you between 2.9% and 3% for this type of service. Most credit cards will not provide you with more than a 1% return through either cash back or miles. You may occasionally earn 2% with some top offers, though even then you'd be in the red.

The single best opportunity to come out ahead with rewards when it comes to paying your mortgage is on bonuses. With certain credit card sign up offers that require you spend some amount on the card within a set period of time, the rewards rates on those purchases can reach 30%. This would put you significantly ahead of any service fees. However, the fee itself would still be eating away into your savings. Whenever possible, it is best to earn a credit card bonus through ordinary purchases that don't come with any additional service charges attached.

Example

  • Card A comes with a $500 cash bonus for those who spend at least $3,000 within 3 months
  • If you use a $1,000 mortgage payment to reach that bonus, you're effectively earning a 17% return ($500 / $3,000)
  • Assuming a 2.9% service fee, the cardholder loses $29 from that $500 bonus

There is no getting around these third-party services, since most mortgage companies and banks will not allow you to make a direct payment with your credit card. The few that will allow it will usually charge fees that are very similar to those we described above.

You'd Be Refinancing at Higher Interest Rate

The average credit card interest rate is significantly higher than the typical mortgage rates. Currently, credit card debt can be financed at approximately 14%. By comparison, the average rate on a 30-year-fixed-rate mortgage as of 2017 is 4.10% — nearly 10 points less. Using your credit card to pay part of your mortgage is is simply shifting debt from one account to another while at the same time agreeing to a higher interest rate. Therefore, it should be thought of as refinancing your debt at a higher interest rate.

Keep in mind that even using a zero percent interest credit card you would be paying a finance charge. While you won't be charged interest, making the purchase with the credit card would result in the aforementioned service fee being charged. Beyond that, you would also need to worry about the transaction going through as a cash advance, since those do not qualify under a zero percent promotion. We go over that in more detail in the next section.

The Transaction May Go Through As a Cash Advance

One of the biggest risks you run into when paying your mortgage with a credit card is that the transaction will go through as a cash advance. Unlike regular purchases, cash advances come loaded with extra fees and higher-than-normal APR. As we mentioned previously, the average credit card purchase APR is 14%. Cash advance APR typically reaches 25%. On top of this, you get charged a cash advance fee for initiating the transaction. This would be added on top of any service fee you already pay.

If your issuer decides to process a mortgage payment as a cash advance here is how much it can cost you:

  • If your mortgage payment is $1,000, and you're initially charged a service fee of 2.5%, you'll pay $25 right off the bat.
  • A typical cash advance fee is 5%, which will add another $50 charge
  • Assuming you pay off the entire cash advance in a month, you can expect to pay another $20 in interest, assuming a cash advance APR of 25%

In total, you'd pay $95 in finance charges. That is nearly 10% of your initial transaction. This scenario also assumes you immediately pay off your purchase. If you can't afford to, the interest charges will snowball.

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