You’re finally ready to realize your dream of being a homeowner. You know you’re going to have to take out a hefty loan to do it and you’re working on your pre-approval, but you’re going to do it.
Then it occurs to you as you’re paying for your groceries with your rewards-earning credit card. What if you could use your credit card to pay your mortgage? Imagine all the rewards you’d earn on that big monthly expense!
However, raking in those rewards might not be as easy as you think. It may not even be possible to use a card. If it is, it may not be worth it. Let’s take a look.
Is it Possible to Use a Credit Card to Pay Mortgage Premiums?
First off, you have to determine if it is even possible. It is not a simple yes or no. It all depends on three factors. The card network, the card issuer, and the mortgage lender.
The big card networks typically restrict you to a certain type of card that you can use to pay a mortgage. For example, a prepaid card or debit card.
Some issuers flat out refuse to let you use their cards to pay a mortgage. Others do, but it is dependent on whether the mortgage lender will accept that form of payment.
Finally, the mortgage lender must accept credit card payments — and many do not.
However, some lenders may allow you to use a third-party service to make the payment. You pay the service with your credit card and they send a check or electronic payment to the lender. Of course, they will charge a fee which cuts into any rewards you might earn.
Additionally, there are roadblocks with this method as well. For example, not all card networks allow third-party services to do this so it will depend on the card that you have.
Is it a Good Idea?
So what if you find a setup that works to use your credit card to pay the mortgage? Is it a good idea? Let’s take a look at a few things to consider.
A big benefit to using a credit card is the rewards you can earn. Since your mortgage payment is a large monthly expense, the rewards on it can add up fast if you pay it with a credit card.
For instance, say your mortgage is $2000 and you get 2% rewards. That’s $40 a month, $480 a year, that goes right back in your pocket. Right?
You’ll usually have to pay a processing fee of around 2.5%. That wipes out any rewards and you end up spending even more money.
The one exception to this is if you are trying to make the minimum spending requirement to qualify for a sign-up bonus. Some of those bonuses can be quite a chunk of change, but you’ll have to spend several thousand dollars on the card within the first few months of getting it. Paying the mortgage can be a great way to meet that spending requirement.
If you do use your card to pay the mortgage, make sure that you are paying off your balance each month. Most credit cards have a rather high-interest rate. You could end up spending hundreds of dollars in interest on top of the interest you’re already paying for your mortgage.
Another factor to consider is that using your credit card to pay your mortgage could affect your credit. But how? If you pay your balance each month, there shouldn’t be a problem, right? Not quite.
On-time payments at 35% are the most important factor that determines your credit score. But your credit utilization is the second weightiest factor coming in at 30%.
Even if you pay the balance off each month, you’ll constantly have a large payment on your credit card, using up your available credit. Depending on how much credit you have available to you, this can drop your score substantially.
Should You be Buying a Home?
All right, let’s back up a second. Why are you wondering if you can use a credit card to pay the mortgage? If you’re interested in the rewards, that’s one thing. But if you’re concerned that you might not be able to make your payments on time, take a moment to step back and think.
Using debt to pay off debt will only lead you down a trail that will have you drowning in interest payments. Take a good look at your finances and determine if this is the right step for you.
An experienced real estate agent can help you decide. They can also help you find properties within your budget and keep you on track if you get excited about a property that you can’t afford.
Using one from the Clever Partner Network will save you even more money. You’ll get the services of an experienced, local agent and a hefty home buyer rebate at closing. You can apply this towards your down payment, or keep it in reserve to help with your mortgage payments if you’re concerned that you’ll have trouble with them.
That’s a much more clever plan than using a credit card.
Learn more about buying with Clever today.