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If you’re going through a tough time financially and need more time to make your mortgage payment, you may be wondering if you can pay your mortgage with a credit card. Although technically possible, paying off your mortgage with a credit card is not a straightforward process. And for most owners, it’s not the best choice.
Here’s what to know about paying your mortgage with a credit card, the risks involved, and the alternatives that might be better suited to your financial goals.
Refinancing your mortgage could help lower your interest rate and make your monthly payment more affordable. Visit Credible for compare mortgage refinance rates from several lenders.
Can you pay your mortgage with a credit card?
You can pay your mortgage with a credit card, although it’s not as simple as swiping your credit card at your mortgage lender’s office. Mortgage lenders don’t usually process a credit card payment, although there are workarounds that allow you to pay your mortgage with a credit card.
The biggest consideration is not if you can pay your mortgage with a credit card, but if you should. This method of payment isn’t a good idea for most homeowners, as it can actually lead to more financial hardship – you’ll usually pay fees on top of your mortgage payment, making it even more expensive.
If you are having mortgage payment problems, you should contact your mortgage agent as soon as possible.
What to consider before paying your mortgage with a credit card
Paying your mortgage with a credit card is not a decision to be taken lightly. If it were a simple, mutually beneficial arrangement, mortgage lenders would accept credit card payments directly. For one thing, lenders don’t want to pay credit card processing fees, and many lenders can’t legally accept credit card payments under the terms set by credit card companies.
Consider the following before paying your mortgage with a credit card:
- You will probably pay a fee.
- Your credit score could drop.
- You can pay more interest.
Although paying off your mortgage with a credit card has many disadvantages, in some situations it may make sense to do so.
You will avoid late payment
Paying your mortgage payment late even once can result in your loan defaulting, which can lead to foreclosure on your property. Using a credit card to make that payment on time can help you avoid defaults, but if you can’t make your credit card payment on time, you’ll likely pay more interest.
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If your loan is in default and you are facing foreclosure, you can make a payment with a credit card to give yourself some time to determine your financial situation. Foreclosure is serious, and if you’re using a credit card to make a mortgage payment, you should have a plan that allows you to make the next mortgage payment on time.
With Credible, you can compare mortgage refinance rates from various lenders, without affecting your credit.
When it doesn’t make sense to pay your mortgage with a credit card
At best, using a credit card to pay your mortgage can be a hassle. But in some situations, using a credit card could cost you more. You should avoid using a credit card to pay your mortgage if these situations apply to you:
The fees are not worth it
You can pay your mortgage with a credit card using a third-party service, prepaid cards, or gift cards to buy money orders. Unfortunately, using a third-party repairer and purchasing money orders both incur fees. If these fees end up putting more strain on your finances than just paying the mortgage amount directly to your loan manager, it may not be worth the extra expense.
Your credit will take a hit
Although certain unavoidable circumstances can negatively affect your credit, paying your mortgage with a credit card should not be one of them. This decision could affect your credit score by changing your credit utilization rate, which is your credit card balance divided by your total credit limit. If this percentage is greater than 30%, it could negatively affect your credit score.
Your credit utilization rate makes up 30% of your FICO score, which is the second most important factor in determining your credit score.
Interest charges are too high
Unless you have a 0% APR balance transfer card, chances are your credit card interest rate will be higher than your mortgage interest rate. If you can’t pay off the credit card right away, your monthly mortgage payment could end up costing you a lot more.
For example, if you have a card with an interest rate of 25.8% and you use it to make your monthly mortgage payment of $2,000, you will pay $516 in interest on that month’s payment, plus mortgage interest that is built into your payment amount.
How to pay your mortgage with a credit card
If paying your mortgage with a credit card makes sense and won’t negatively affect your credit or finances, consider which credit card payment method is most advantageous.
Use a third-party service
A number of online third-party services allow you to pay your mortgage and other bills with your credit card, including Plastiq. With these types of services, you pay the business with a credit card, and the business pays your lender by check, wire transfer, or wire transfer. It is important to note that these companies usually charge transaction fees for credit cards.
Use a prepaid card
You can also purchase a prepaid card from a credit card company like American Express, Mastercard, or Visa to make your mortgage payment. This will only work with a lender that accepts prepaid cards for online payments. If so, you can buy a prepaid card and pay online just like you would with a regular credit card.
Convert a gift card to a money order
Converting a gift card into a money order to pay your mortgage can be a convenient solution for some homeowners. But the process involves several steps. You use your credit card to purchase a PIN gift card, then use the gift card to purchase a money order, which you will use to make your mortgage payment. Keep in mind that you may have to pay a fee to purchase the money order.
Credible, it’s easy to compare mortgage refinance offers from several lenders.
You have many other options to consider when facing financial difficulties. Paying off your mortgage is a top priority, and you should employ a number of strategies to ensure you don’t risk foreclosure. If you can’t pay your mortgage with a credit card, consider these alternatives:
- Review and adjust your budget. Before exploring formal repayment options, see if you can allocate other parts of your budget to your mortgage payment. You can cut costs by canceling subscription services you rarely use or by committing to cooking your meals at home for the month instead of dining out.
- Look for a loan modification. A loan modification allows you to adjust an element of your mortgage, such as the principal balance, term or interest rate, to make it more affordable. By working with your loan manager, you may be able to extend your loan to a longer term for a lower monthly payment, lower your interest rate, or lower your principal balance.
- Find out about forbearance. A mortgage forbearance occurs when your mortgage company allows you to temporarily reduce your payments or suspend them with a grace period. Keep in mind that this only suspends your payments; you will still have to pay your mortgage in full according to your repayment terms. Interest also accrues during a forbearance period.
- Talk to a housing counsellor. A housing counselor is someone who assesses your mortgage payment difficulties, evaluates your options, and helps you identify the right solution for you. A licensed housing adviser from the Department of Housing and Urban Development can help you at no cost.
- Refinance your mortgage. Refinance your mortgage has many advantages, such as lower your monthly payment, lowering your interest rate and removing private mortgage insurance if you’ve built up enough equity in your home. The downside is that you will have to pay closing costs, your credit score could dropand it could actually increase the total cost of your loan if you refinance for a longer term, since you’re adding years to the term of your loan.