If you've ever wondered if you could take advantage of a cash-back or rewards credit card to make your monthly mortgage payment, you've probably envisioned the possibilities — earning 1.5% back each month on your payment, thus chipping away an extra 1.5% from your principal.
Or maybe you want to earn enough rewards to pay for a family vacation, and you know adding that mortgage to your monthly credit card spend would get you there in no time.
They're nice thoughts, but turning them into reality can be tough, if not downright impossible.
Most mortgage lenders don't allow payments to be made using a credit card, and for good reason. Just imagine how quickly someone could get into debt if they weren't able to pay off their credit card each month. Suddenly that $1,500 payment with 4.25% interest skyrockets to 12.9%, 17.9%, 22.9% or higher. A few months of that can add up to some serious credit card debt. (If you're in the process of securing a mortgage, you may want to consider finding out how much house you can actually afford using this tool.)
What Are My Options?
Some lenders, however, have recognized the desire for rewards and cash-back on mortgage payments and offer credit cards that accrue cash-back directly to your mortgage. Wells Fargo, for instance, offers a credit card that earns between 1% and 5% on everyday purchases, and then credits your mortgage loan principal (for eligible Wells Fargo home loans) automatically every time you earn a $25 rebate.
If your lender doesn't offer a similar product, they might still accept credit card payments, so it's worth asking. Be sure to find out if there are fees associated with the transaction (some lenders could process the payment as a cash advance, for example, or there could be convenience fees). If so, compare the fee to the rewards you might earn by charging your mortgage payment. If you're using a card that offers cash back on all purchases, any processing fee exceeding that cash-back percentage basically negates the point.
If you can take advantage of paying by credit card, you'll want to make sure you're able to pay the credit card off every month. (You can use this credit card payoff calculator tool to learn more about how long it may take to pay off your credit card debt.) In fact, going ahead and paying the mortgage amount you charged to your card right after you make the mortgage payment ensures you get the rewards or cash-back and don't run the risk of spending that mortgage money elsewhere.
It's also a good idea to regularly check your account to make sure your payments are going through as planned. You can see how your credit card spending is impacting your credit scores for free on Credit.com.
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