money

Pay Off Your Mortgage With a Credit Card: When Does It Make Sense?

Justin McCormick

VP of Operations & Finance, WealthFit

Having a mortgage is a blessing, but it can also be a curse. Mortgages provide you with the ability to buy a home and hook you up with some solid tax advantages, but they also strip you of some of your financial freedom. Many people are opting to take some of that freedom back. One strategy they use is paying the mortgage with a credit card. But is it a good strategy—or are you better off making regular mortgage payments via check?

Paying off your mortgage with a credit card might sound crazy. But is it really?

We’ve been conditioned to think of all credit card debt as “bad debt.” But that conditioning is wrong. Debt can be a great thing, and it’s important to understand the difference between good and bad debt.

In order to count as good debt, your debt should be responsible. If you use your credit card to buy a jet ski, you’re creating bad debt. That jet ski is going to decrease in value immediately. You’re not making any income off of it (unless you’re a competitive jet skier). It doesn’t translate to income or up your net worth. That’s bad debt.

Good debt is an investment. Having a mortgage builds good debt. When you make mortgage payments, you create equity in your home. Over time, this ups your net worth.

How to Pay Your Mortgage with a Credit Card

There are very few people who can buy a house with cash—and you’re probably not one of them. That’s okay. This is why mortgages were invented. It’s also why getting approved for a mortgage is the first step in the process of buying a home.

There’s catch with mortgage payments, and it’s this: your first payments are mostly interest. That means you’re typically only paying down $50 or less on the principal balance of your loan. So, the equity you have in your home is . . . next to nothing.

Using a credit card to pay can help you make something as you pay off your mortgage. Credit card rewards can earn you cash back, frequent flier miles, or other immediate benefits on your mortgage payments.

However, you’ll need to check with 3 sources first: your card network, your card issuer, and your mortgage lender. Many lenders don’t accept credit cards. If they do, they’ll pay a fee to the credit card issuers. You may need to use a third-party service to pay your mortgage with a credit card.

Going through a third-party service means taking on the payment yourself. One service to consider is Plastiq, which takes your credit card payment and cuts a check to your lender.

Finding the Best Credit Card to Pay Your Mortgage

The key to paying the mortgage with a credit card is finding a card that offers rewards that make your investment worthwhile. Many credit card companies offer a range of reward cards.

A card with cashback rewards can offer you easy-to-quantify rewards for paying off your mortgage. If you earn back a percentage of your spending, the amount can offset any fees you’d pay and put more cash in your pocket.

Points cards can also be worth using. Many credit cards allow cardholders to earn points that they can later redeem for money or merchandise. A points card can increase your purchasing power while helping you to make your mortgage payments on time.

The final kind of card to consider is an airline mileage card. If you’re looking for a way to reduce the costs of your family vacations then using a mileage card to pay your mortgage can help you earn free flights.

The key is to make sure that you earn rewards that are worth at least as much as the fees you pay to use a credit card for your mortgage. Evaluate any credit card offers thoroughly and crunch the numbers before you sign on.

When Does It Make Sense to Pay Your Mortgage with a Credit Card?

It doesn’t always make sense to use a credit card to make mortgage payments—but let’s talk about when it does.

The biggest incentive to use a credit card for mortgage payments is when your credit card has a sign-up bonus with a minimum spending requirement. Maybe you need to spend thousands of dollars in the first few months of having your card to qualify for the bonus. It can be difficult to meet those minimums with non-mortgage spending. Putting the payment on a card can help you get there.

Sometimes people put their mortgage payments on a credit card and then use the cash for something else. Beware. If you can’t pay off your balance in full, you will pay interest on both your mortgage and your credit card balance.

Using a credit card to pay off your mortgage makes sense when it earns you rewards or cash back. It doesn’t make sense if you’re only building up more debt and using the money you’d spend on your mortgage for additional spending.

The Benefits and Risks of Paying Your Mortgage with a Credit Card

If you do your research, choose the right card, and pay your credit card’s balance every month, the benefits should outweigh the risks.

Should You Pay Off Your Mortgage with a Credit Card?

There’s nothing wrong with paying your mortgage the old fashioned way—but if you can qualify for a rewards card that offers significant benefits, you can leverage your mortgage payments and put money into your pocket every month.

If you like the idea but don’t have a credit card with the right rewards yet, make that your first order of business. Consider which method makes sense for you and get started on paying off your mortgage.

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Written By

Justin McCormick

Justin is the VP of Operations & Finance. He has leveraged his passion for education, entrepreneurship, and numbers into a versatile portfolio of investments which include stocks, real estate, oil & gas, green energy, real estate lending, online and offline startups, restaurants, and more.

Read more about Justin

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