Can mortgage be paid with credit card; Before the Great Recession, everyone wanted a piece of the mortgage. From the first-time homebuyer to investors looking to buy a second home or an investment property, plenty of people wanted to take out a mortgage to purchase a house. However, that wasn’t necessarily a good thing for all involved. As interest rates dropped, more and more people started looking to get into the housing market.
Unfortunately, this also pushed up demand and artificially drove up prices—and prices eventually began to fall. The result was that many Americans looking to buy their first home found themselves unable or unwilling to come up with enough money for a down payment or a qualifying mortgage. In response to this growing problem, several banks and credit unions have recently begun offering their customers the ability to pay for their mortgages in installments with their credit cards instead of cash.
What is an installment loan?
An installment loan is simply a type of loan that requires the borrower to make payments (either lump sum or regular) for a certain length of time in exchange for a loan amount. For example, with mortgage loans, most lenders will require you to make monthly payments for the life of the loan, typically 30 years. You’ll be charged interest on your borrowed money in exchange for these regular payments. On the other hand, with a credit card loan, the interest you’ll be charged is often compounded (or “added”) daily, making it a type of loan that can often be paid off much more quickly.
Can you pay a mortgage with a credit card?
This is a tough one. In most cases, lenders will only allow you to make “installment” payments if you have a credit card loan. Since you don’t have a mortgage, the person you’re making payments to is usually an independent contractor or an agent working for a third party. Even then, it’s important to remember that a mortgage is a loan against your property, which means that if you lose your job, you lose the house too. However, with a credit card, you have no such risk since the creditor is the one who takes the risk. That means you can technically pay off your credit card with a mortgage and never pay off your credit card.
Pros of paying your mortgage with a credit card
- Easy: Sign up for an authorized credit card user (or “ACU”) account with a mortgage lender, and you’re all set. Make the required payments on time, or even a little ahead of time if you can manage it, and you’re good to go.
- No Down Payment: As mentioned earlier, one of the main reasons people were getting into trouble during the Great Recession was that there weren’t enough qualified buyers to meet the demand for homes, driving up prices and making it too difficult for many people to find a mortgage. One way to help address this problem is to skip the down payment and start by paying the full amount of the mortgage. This has the bonus of giving you the ability to make larger payments over time without affecting your credit score.
- Lower Payments: If you pay off your mortgage with a credit card, you’ll pay interest on your loan even though you’re not putting any of your own money at risk. This means that the monthly payment will usually be lower than if you had put the same amount down on a 30-year mortgage.
- No Mortgage Tax: You won’t pay any taxes when you pay off your credit card mortgage, but you will have to make payments on time.
Cons of paying a mortgage with a credit card
- Higher Interest: When you pay a mortgage with a credit card, you’ll be charged interest on the entire amount you borrowed, not just the amount you’ve paid. This means that you’ll probably end up paying more in interest than you would with a mortgage in the long run.
- Higher Payments over the Life of the Loan: Since you’re not putting any of your own money at risk, the amount you have to pay each month will be higher. You’ll have to wait longer to purchase another car, pay for a house, or have enough money in your savings account to pay for a sizable emergency.
- Higher Fees: Several fees can come along with using a credit card to pay off a mortgage. For example, your lender may charge you a fee for opening an account, a monthly fee, and a single fee covering several of these costs.
Final Words: Should you pay your mortgage with a credit card?
The decision to pay off your mortgage with a credit card is up to you. Some people may find that paying off a credit card with a mortgage is a great way to boost their debt-to-income ratio, while others may find it too risky. Before making this decision, it’s important to speak to a mortgage or credit counselor to make sure that you’re making informed decisions that are best for you. It would help if you also considered setting up a consultation with your local lender to make sure you’re completely aware of the risks and benefits of paying off your mortgage with a credit card.