Paying Your Mortgage With Your Credit Card: Worst Idea Ever?
August 28, 2008 by Miranda Marquit
Filed under Finance
One of the growing trends in personal finances right now is making your credit card payments before making your mortgage payment. This is a worrying trend, since it is important to make sure that your mortgage is paid. And, while credit card companies often loudly demand payment, the bottom line is that there are protections that you have against them, under the Fair Debt Collection Practices Act (FDCPA), and you should really focus on keeping your home.
But maybe, just maybe the reason that folks are paying of their credit cards first is so that they can put their mortgage payments on their credit cards.
That’s right. According to BusinessWeek (hat tip: Miki at Leadership Turn), more people are opting to use their credit cards to make mortgage payments.
Using your credit card to pay your mortgage
BusinessWeek reports that Philip Mikal, a guy at ChargeSmart, hails this trend as something for savvy homeowners:
“With the reward points, cash back, and payment flexibility [on] cards, educated consumers are looking to charge everything they can,” says ChargeSmart’s Philip Mikal.
Um, yeah. That only works if you actually pay your credit card balance off each month.
Besides, there is one good reason to avoid paying your mortgage with your credit card (tempting though it may be). Can you guess what it is?
The fees.
When you use ChargeSmart to set up an online mortgage payment to one of 48 lenders with your credit card (many mortgage lenders won’t accept credit card payments), you are hit with fees. First of all, there is the $4.95 flat fee for each payment. Then there is a transaction fee that is 2.29% of your mortgage payment amount. For me, that means ($1,350 x 0.029 = $30.92 + $4.95 = $35.87. I could pay an extra $430.44 a year, to put my mortgage payment on my credit card. Somehow I think that would negate the 1% cash back I’d be getting.
Another issue is the credit card interest rate. If you carry a balance, it means you are likely paying upward of 13% interest on your mortgage loan now, as opposed to the average 6.4% rate for a 30-year fixed. This could actually make things worse for you than better.
What do you think? Would you consider paying your mortgage with your credit card?
image credit: sxc.hu
I opt to pay a lot of our utility bills with our credit card to take advantage of rewards. As your post says, some companies charge a fee for using a credit card, which more than negates the rewards. So I don’t do it in those cases. If I knew I could pay our mortgage at no extra cost on my credit card, I would do it for sure.
You, of course, hit on a key point. It is important to check the fees and the costs in order to determine whether the rewards outweigh the costs.
The other key is that you have to pay the balance off each month. Or the interest charges will destroy you.
Anyone who does this has more money than sense. I’ll add it to my list of crazy things people do, along with:
* taking the kids out for a drive in the car to send them off to sleep.
* putting the fire on to heat up the house and then opening a window to let some air in.
LOL. Thanks for weighing in, Uncommonadvice. I think I’d have to agree with you. Although it does seem a little tempting…
My girlfriends mom used to pay her mortgage with her credit card all the time until she solve her pre-foreclosure situation. Thats why I’m posting this blog on your site. I was shocked to find out that not many people know about this http://www.ForeclosureDVD.com and The Foreclosure Workbook.
I saw this TV commercial while on business in Texas. I hope you and your readers can benefit from this information. Apparently it was a promotion for a FREE workbook.
Keep up the great blogging!
Interesting idea…using the credit card to make payments until the problem is solved. Although I think that working with the bank in such cases is a better idea, if something can be worked out that way.
The trick is finding credit cards at 0% interest on balance transfers. Open multiple lines and transfer portions of your total mortgage onto each. Most card companies offer 0% for the 1st 12 months. At the end of the intro year, transfer all the balances to new lines of credit again at 0% interest. Three Rules: 1) research cards offering lowest transfer fees. 2) Always make the low 1% minimum monthly payment and never be late or you lose the 0%. 3) Nothing else goes on these cards. The beauty is, 100% of your payment goes to the principal balance. You pay off your home in 8-10 yrs vs. 30. Only for the truly financially responsible types.
An interesting process, Heather! You are right that such things are for the really responsible folks. It is also important to check for prepayment penalties, see whether your lender will let you put your mortgage on the credit card, and watch out for fees associated with third-party payment programs. Perhaps if you got a HELOC first — that would make it easier to do the balance transfer…
I agree with Tim -if you are in a tight corner then it might not be the worst thing to do. It could give you some breathing space. Otherwise it is best avoided, the fees don’t make it worth it and you need to be to use Heather’s words ‘Truly financially responsible’
Thanks Miranda for the tip on the 3rd-party payment fees. Pre-payment, I knew of. I did transfer my heloc 1st. I even set up auto-payment online. It really takes the thinking out of the process. Do you kow how long 0% interest promotions like these have been available? With the credit market crisis, do you see card companies getting rid of these intro programs? I need security in knowing that I can get 0% for at least 8 years. Another idea is that some cards offer 4% and lower for the life of any transfer. Not many home loan rates beat that.
Good point, Debt! If you have a cash flow problem, it can ease things a little. But it is important to realize that if you can’t make your mortgage payments, and you can’t pay off the credit card, after a while, that will still catch up to you.
Also, @Heather, I’m not sure how long 0% intro programs will be around. The problem with the low balance transfer lifetime rate is that it only works one time. So if you tried to put monthly payments on the card, the 4% would only apply to the first month. I suppose if you had enough room to transfer most of a HELOC that would work, but it is important to note that card companies are offering lower credit limits in addition to the increasing scarcity of 0% offers.
your math is wrong on the credit card transaction fee it is .0229 not .029
Thanks for catching that. So, $1,350 x .0229 = $30.915. Since it will most likely be be rounded up, the result would still be $30.92. But I will do better in the future and attempt to avoid those minor mathematical problems. After all, decimal point in the wrong place can be devastating in some cases!