Should You Pay Your Mortgage With a Credit Card?

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Last updated on April 27, 2011 Views: 547 Comments: 12

Whenever it has been allowed by my landlords, I’ve paid my rent with my credit card. For me, this type of arrangement makes sense. I have the money to pay the credit card bill right away, and I earn cash back for using my Citi Dividend Platinum Select.

The cash back isn’t the only benefit. By using credit cards, I delay my payment by at least 30 days. That allows me to earn interest on the money while it’s sitting in my savings account. The longer you can put off making payments without incurring penalties, you have a better financial position.

This is similar to how business work. A large vendor for a small company can get away with requiring payment for goods immediately; a small vendor for a large company has to provide goods on the large company’s terms, which usually means the large company can wait before paying. It’s better to delay payments to let investments earn more interest or appreciation.

Thanks to a reader’s tip (if you have one, email tips at this domain), I found out that American Express will begin allowing card holders to pay their mortgage using their credit cards, earning points along the way.

In theory, I see no problem with this. In practice however, it can be dangerous for anyone who can’t afford their mortgage. If the full credit card bill can’t be paid each month, borrowers will start incurring perhaps 13% interest charges on top of their mortgage interest. For someone who sees this as a way out of paying their mortgage, an avalanche of debt will soon follow.

Not only that, but there’s a catch. In order to qualify for making mortgage payments via American Express, the borrower would need to pay an enrollment fee of $395 to the lender. This fee means it will take longer to make the rewards earned by using the cards worthwhile; the Wall Street Journal estimates it would take over a year if the borrower uses American Express Blue Cash.

By the way, if you’re wondering about tax implications, the mortgage interest is tax deductible when you pay with the credit card if you itemize, but credit card interest, which you’ll incur if you don’t pay the credit card bill off each month, is not.

If you are not organized or do not manage your debt, stay away from this plan. If you’re a rewards ninja, always paying your bills on time, and confident you’ll easily make back the $395 fee, go for it.

Article comments

12 comments
Anonymous says:

this is a plan for losers. pay your dam mortgage and be done with it. dont try to be cute this is what got most people in the subprime mortgage mess we’re in.
How low are we going to go, perhaps if your performance at work increased you would get a promotion and not have to worry about how to get a quick buck from your REWARDS card.

Anonymous says:

The idea is that if you can get rewards (cash) for paying a bill you’d be paying anyways, (via debit) then why not? The downside seems to be on the mortgage lender. They don’t want to pay visa or mastercard 1-3% per transaction and essentially lose their profit margin.

It’s not about having a low income or worrying about a quick buck. It’s free money if you can get it. I make 300$ a year with cashback rewards on my visa for paying regular monthly bills. Adding a large mortgage payment on top of that at 2% back would be amazing.

However this strategy will never work. Mortgage lenders would get screwed.

Anonymous says:

Just locked this in today…Bank makes the money on the $395 fee for first year and hope to gain more of your business after that. Amex gets a smaller cut than normal transactions but it is HIGH volume of cash and with the underwriting they keep it extremely low risk. If you are financially sound enough to qualify, savvy about rewards points (ie…..realize how fast you’ll pass the $6,500 floor on Blue Cash and start getting 5% on many purchases) this is a no brainer. The fees and rates are competitive and they also have a $300 rate match guarantee. If you can pay each month and rates happen to be at a rate where you would refi anyway, than why not? I just locked 15-year at 5.000%.

Anonymous says:

Phillip,

I saw your post and checked out your website. Great concept, but at $19.95 per payment plus 2.5% of mortgage payment for the fee, I do not know of any rewards program where the consumer could come out ahead, or even have a good chance of breaking even. Get the fee down to a flat 1%, and you will likely have my business.

Anonymous says:

Our company, CardIt, just launched this month. We allow payment of over 100 lenders via Visa, Mastercard, or Discover.

Unlike the AmEx program, we have no enrollment fees or ongoing commitment. There is a fee to use our service, but saavy users have been able to substantially mitigate this depending on their use of rewards programs. Other users have found use for their cash that has greater value to them than the cost of making a payment with us.

I welcome direct comment and feedback. philip (at) cardit (dot) com.

Anonymous says:

This is an excellent idea but it seems to me that only a small percentage of people are able to keep control of their credit card spending.

For everyone else this could get out of control very quickly and just put them in the situation of running up more high cost debt as we all know what the interest rates on credit cards are like.

Anonymous says:

I would love this, but I wonder if there is going to be some kind of catch down the line. For instance, perhaps they pull the rug out and say that they are no longer accepting the specific cards that give rewards. I’m not sure if they could legally do that after you pay for the privilege, but I could see that being the case.

Or perhaps the mortgage companies that offer it make up for it by offering worse rates.

Anonymous says:

Only if you can pay it off each and every month, and if there’s no fee associated with doing this.

Otherwise, NO!

Anonymous says:

Any company can choose not to accept payment by credit card. I still remember when it was cheaper to pay at the pump for gas by cahs. Other service providers just choose not to do that since they rather pay the transaction charge and get paid. However a 1-3% transaction chrage for mortgage company is significant. It’s the equivalent of them dropping your interest rate by that amount. They make thin margins on a large amount. The transaction charge could take away their whole margin.

Anonymous says:

Benefit sounds okay if you want the risk and are responsible with your cards, but a $395 fee? Ouch! Really what is different between a mortgage payment and any other bill? If they already allow other bill pay through the card, what justifies the mortgage exclusion?

Luke Landes says:

I think other companies will offer similar services in the near future — if not other credit card companies (who will wait to see if they want to take on additional risk), other mortgage lenders who would be happy to set up automated payments from a credit card for a fee.

Anonymous says:

I think you missed the biggest downside–only one mortgage or two companies are accepting the Amex card for payments. So you’d either have to already be with the company or refi. Now obviously if Amex can get others on board, or find a way to allow checks to be cut with a credit card payment (for a low enough fee), that would be great news.