Should You Pay Your Mortgage With a Credit Card?
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.