Mortgage Rate News

Image by Getty Images via Daylife

This is a guest post by Joel Ohman

If you want to pay your mortgage with a credit card then there is both a right way to do this and a very wrong way. Let’s take a look at some of the important factors that come into play before you just start slapping your plastic down willy nilly to make your mortgage payments.

Before We Proceed…

The first question that has to be asked before proceeding any further is, “Why do you want to use your credit card to pay your mortgage?”

Think very carefully before you answer because the answer to this question will decide whether you should even remotely consider using your credit card to make your mortgage payment. Just like you no doubt used a comprehensive mortgage calculator to do your research before you got your mortgage it is no less important to do your research and determine if you have the right motivation in wanting to use your credit card to make your mortgage payments.

There are many good reasons to use a credit card to pay your mortgage and also many very bad reasons to make your mortgage payment with a credit card.

Good Reasons:

• Get cash back, points, or rewards from your credit card.
• Take advantage of the “float” (the one month interest free loan from the credit card company between required monthly payments).
• Build your credit history.

Bad Reasons:

• You can’t afford your mortgage payment because you bought more house than you can afford.
• You don’t have a good budget in place.
• You treat your credit card like it offers “free money” that doesn’t have to ever be paid back.

If you have determined that the reason behind your desire to use a credit card to pay your mortgage is a bad one then do not pass go, do not collect $200, and immediately to to money management “jail” and start learning how to manage credit responsibly before you proceed any further. If you have determined that the reason behind your desire to use a credit card to make your mortgage payment is a good one then let’s take a look at the best way to make it happen.

Using Your Credit Card Bill Pay Feature

The #1 most important thing to keep in mind before attempting to make a mortgage payment with your credit card is that if you withdraw cash, use a credit card convenience check, or swipe your card to make the mortgage payment then you will like be hit with hefty cash advance fees.

To avoid paying these cash advance fees you will want to make sure that your payment is processed as a regular payment from your credit card. The very best way to do this on a majority of credit cards is by setting up an online bill pay from your credit card to your lender.

Each and every credit card company is different but for the most part if you use your bank or credit card company’s bill pay feature then you will not be hit with any cash advance fees and you will still be able to use your credit card to make the payment. Just imagine if your monthly mortgage payment is $2,000 per month and your cash back credit card gets 1% cash back then after 1 year you will receive $240 cash back, $2,400 cash back after 10 years, and $7,200 after 30 years!

$240 per year is not a fortune but since everything can be scheduled online to automatically pay the mortgage via your credit card online bill pay and then your credit card balance can be paid in full each month via automatic draft from your checking account who wouldn’t want to earn an extra $7,200 or more after 30 years for essentially just 15 minutes of set up work?

Avoid Paying Interest Twice!

If you do decide to make your mortgage payment with your credit card then the important things to keep in mind is to not only make sure that the payment is not treated as a cash advance but then to also make sure that you pay off the credit card balance in full each month so that you will not face additional interest charges on top of your existing mortgage interest charges.

By carrying a balance on your credit card and paying your mortgage with your credit card you are essentially paying interest twice via both mortgage interest and credit card interest.

All in all, there is certainly a way to pay your mortgage with your credit card the right way but proceed with caution!

Joel Ohman is a Certified Financial Planner and the owner of a credit card comparison website.