When you’re facing financial hardship and struggling to pay your mortgage each month, using your credit card may be tempting. If you’re wondering, “Can I pay my home loan with a credit card?” the answer is yes, but it’s not a straightforward process.

Paying your mortgage with a credit card may also be an attractive option for those who want to earn a welcome bonus or rewards. Read on to learn more about how the process works, the pros and cons, and when it makes sense to use your credit card to pay your home loan.

Can I Pay My Home Loan With a Credit Card?

You can pay your home loan with a credit card but it’s not easy or straightforward. Banks typically don’t allow you to use credit cards as a direct mode of payment so you’ll need a workaround solution.

These workarounds are usually not free, so there may be extra expenses, which can make it more expensive, even when considering the fact that you may be able to earn credit card rewards for the transaction.

How To Pay Your Home Loan With a Credit Card

There are three main ways you can use a credit card to pay your mortgage loan. While you can still earn credit card rewards with these options, they involve some costs.

Third-Party Payment Services 

Third-party payment services can act as the middlemen to help you avoid restrictions. You can use your credit card to pay these payment services, and they’ll then make a payment to your mortgage lender on your behalf.

Plastiq is one such payment processor that will allow you to use your credit card to pay your home loan. Plastiq charges a 2.9% transaction fee for card payments, which dents the value of any points or cash-back rewards your credit card issuer may offer you on the transaction. In addition, it’s important to note that you can’t use American Express cards with Plastiq.

Prepaid Gift Cards

You can also use your credit card to purchase a prepaid gift card and then use it to make home loan payments. Visa, Mastercard, Amex, and Discover gift cards are easy to purchase.

However, there may be a cap on the maximum value you can load on the card. If your monthly mortgage payment is large, you may have to use multiple prepaid cards.

Money Order

Another option is to purchase a money order with those prepaid gift cards. Money orders can act like checks for mortgage payments. Keep in mind that not all retailers will accept prepaid cards for money orders. You’ll usually have to pay $1 for a $500 money order on top of what you’ll pay for the prepaid gift card.

Should You Pay Your Home Loan With a Credit Card?

While there are ways to pay your home loan with a credit card, it takes time, extra steps, and money. Consider these factors before you choose this option.

Costs 

If you want to pay your home loan with a credit card to spread out the payments or because you’re facing a temporary setback, it’s usually not a good idea. The average credit card interest rate is about 24.80% in the U.S. right now, which is much more than mortgage rates, which for most people with a mortgage loan these days is between 3% and 7% a year.

Credit Score Impact

Using your credit card to make mortgage payments will also increase your credit utilization ratio. This ratio, in turn, significantly impacts your credit report. Putting large mortgage payments on your credit card can push your credit utilization up and tank your credit scores with all three of the major credit reporting agencies (Equifax, TransUnion, and Experian).

Unless you have a very high credit limit, you may want to request a credit limit increase to minimize this impact if you want to use your credit card to make mortgage payments.

Rewards and Fees

Generally, paying your home loan with a credit card makes sense if you’re trying to get a large welcome bonus that you can’t get otherwise. Another scenario where it makes sense to choose this option is if you’re earning a high rate of rewards compared to the credit card processing fees, which typically range from 1.5% to 3.5% of the purchase or transaction amount. 

Credit card issuers charge merchants, service providers, sellers, and other financial firms this fee, which is then often passed along directly to you, the customer, in the form of a separate (additional) transaction or “convenience” fee for using your credit card. 

Remember that you’ll still need to pay off your credit card balance in full at the end of the month to avoid paying interest on any balance you carry over into the next billing period.

Pros and Cons of Using a Credit Card to Pay Your Home Loan

There are many advantages and disadvantages of paying your home loan with a credit card. Here’s a quick look to help you decide.

Pros

  • It may help you earn a welcome bonus.
  • You may be able to earn reward points or cash back.
  • You may be able to avoid a short sale or foreclosure.
  • It can help you avoid a late fee on your home loan payment.

Cons

  • There are extra steps and time involved in the process.
  • You’ll need to pay extra fees to use third-party payment processing services.
  • You’ll pay higher interest rates on credit cards than your mortgage if you don’t pay off your balance in full at the end of the month.
  • Credit cards are only a temporary solution if you’re facing financial hardship.

When Does It Make Sense To Pay a Home Loan With a Credit Card?

There are two main scenarios under which it makes sense to pay a home loan with a credit card. The first is when you’re trying to earn rewards. However, weigh the transaction fees against the rewards potential to see if it makes sense for your situation.

For example, you’ll earn $40 by making a $2,000 mortgage payment if you earn a 2% cash back on your credit card. However, you’ll also pay a 2.9% transaction fee of $58 if you use Plastiq for credit card payments. In this scenario, even with the cashback, it’s not worth it.

Another scenario where you may want to use your credit card is when you want to qualify for a large welcome bonus. For example, if your credit card company offers 60,000 bonus points when you spend a total of $1,500 on your credit card over the next three months, it makes sense to temporarily use your credit card until you qualify for the bonus.

Keep in mind that interest can add up quickly on credit cards, and it may be difficult to get out of credit card debt if you don’t clear your balance by the end of the month.

Alternatives to Using a Credit Card for Mortgage Payments

If you’re thinking of using a credit card to pay your mortgage because you can’t afford the payment or due to a financial setback, there are other alternatives that may be better suited to you.

  • Talk to your mortgage lender and inform them about your financial situation. They may be able to provide temporary help through a mortgage modification or a temporary change in your repayment plan.
  • Check if your lender will agree to other mortgage debt relief options like forbearance. This will temporarily pause your mortgage payments for a few months while you get your finances into order.
  • Consider refinancing your loan if you qualify for a lower interest rate. This can help you reduce your monthly payments and make them more affordable.
  • Get in touch with a housing counselor to see what options are available to you.

Weigh the Pros and Cons of Paying a Home Loan With a Credit Card

Make sure you understand the extra work and additional fees involved before you decide to pay a home loan with a credit card. This is usually only a good option if you want to earn a large welcome bonus and have the money to pay your credit card bill in full at the end of the month. Interest charges and late payment fees can add up substantially if you don’t pay by the due date.

Keep in mind that there are other ways to earn rewards and qualify for the sign-up bonus from the credit card issuer, such as by putting some of your other regular monthly bills on your credit card. If you’re considering this option to pay a mortgage because your monthly expenses are unaffordable, you may want to refinance or downsize to a smaller home. Another option is to borrow a personal loan or short-term loan that can help tide you over, when you’re experiencing a temporary cash-flow problem.