Last month, I conducted a cash-only budget experiment, and it made one thing abundantly clear: I like my credit card a lot.
My credit card makes paying my monthly bills easy and convenient. I can set payments to occur automatically so they’re out sight and out of mind. I like tracking my purchases and the added layer of fraud protection. But, most of all, I absolutely love those rewards: cash back, travel miles and more. It’s free money, just for paying your bills.
And that got me thinking: If I really want to rack up rewards, why don’t I pay the granddaddy of all bills, the mortgage, with my favorite credit card? Genius, I thought. But I’m not exactly the first person to ponder the possibilities.
Holly Johnson, a finance and travel blogger, recently detailed how she and her husband paid off their home mortgage with a credit card and earned $2,000 in travel rewards. They used a third-party payment platform called Plastiq (the service won’t work for American Express or Visa cards). Because Plastiq charges a fee of up to 2.5 percent per transaction, Johnson says it only makes sense to use the service if the value of your rewards exceeds those costs. For a discount, you can shoulder the marketing duties for Plastiq and refer other people to the service, which is exactly what the Johnson’s did — their blog is pretty popular and they killed it with referrals.
It sure seems like the Johnsons are on to something.
Maybe not. Before you think about racking up travel miles with your mortgage, please, please continue reading.
SHOULD I PAY MY MORTGAGE WITH A CREDIT CARD?
“I would strongly urge anyone considering this strategy to think about why they are considering this in the first place,” cautions Matt Shapiro, CFP®. Throwing your mortgage on a credit card entails navigating a financial minefield, and a little honest introspection early on will go a long way. Are you charging your mortgage to delay payment because you can’t afford the monthly bill? Have you fully considered the hidden transaction fees? Will your lender even allow payment from a credit card (many do not)?
“Replacing low interest rate, mortgage debt with high interest rate credit card debt is a very bad idea”
Above all else, paying a mortgage with plastic could unleash a tidal wave of interest charges if you fall behind on your payments. “Replacing low interest rate, mortgage debt with high interest rate credit card debt is a very bad idea and could end up costing the person significantly more in the long run,” Shapiro explains.
Putting mortgage payments on a card could also affect your credit utilization ratio (your credit card balance compared to overall credit limit), which could affect your credit score and could make it harder to borrow in the future. If you’re suddenly adding $1,200 to your credit card bill every month, you’re utilizing a larger portion of your credit limit. Generally, a utilization ratio lower than 30 percent is considered good; anything above 30 percent could impact your credit score.
“If someone has very high credit limits and puts a significant amount of mortgage payments on credit cards, there could be some tax consequences if that person falls behind on the credit cards, the mortgage or both,” Shapiro adds.
Lastly, there’s a risk that your credit card provider considers a large bill like a mortgage payment a cash advance. If that’s indeed the case, you’ll likely pay an additional fee on top of the service transaction fee. If you don’t pay your credit card bill in full that month, cash advance purchases may be charged at a higher interest rate too.
“Even in the direst of circumstances, paying a mortgage with a credit card as a last resort is a very bad idea, even in the cases where it can be done,” Shapiro says.
TAKING A PASS
After speaking with Shapiro, I officially abandoned any plans I was entertaining to give this strategy a try. For me, it’s just too much work to make charging the mortgage worthwhile. I don’t have the time to perfect the strategy and put those credit card rewards to work. And even if I executed flawlessly, the financial benefits aren’t compelling enough. Additionally, without a guarantee of earning referral points to reduce transaction fees from a service like Plastiq, it’s too costly to go with a third-party service.
While I admit that I had high hopes for getting big rewards for something as routine as paying my mortgage, I’ll stick to forking over payments the old-fashioned way.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements