Paying a large, recurring bill with a credit card certainly sounds like a smart way to maximize the points, cash back or frequent flier miles you earn from your card. But if you try to pay your mortgage with your credit card to earn these rewards, you’ll discover that your options are extremely limited – and are unlikely to pay off.
In the first place, mortgage servicers usually do not allow borrowers to make direct payments via credit card. You may be able to indirectly pay your mortgage if your credit card offers a bill pay service, but these services usually limit cardholders to a pre-selected list of potential payees, which are unlikely to include your mortgage servicer.
Bill pay services that do provide the option to pay your mortgage with your credit card may not give you any rewards for doing so. That being said, as long as there are no fees associated with paying this way and you pay your credit card bill in full and on time, you can take advantage of the float, the period between when you charge your mortgage payment and when your credit card bill is due. The float effectively lets you keep funds in your bank account longer and earn an extra few weeks’ worth of interest. In a low-interest-rate environment, the float won’t help you earn any meaningful amount of interest. But in a high-interest-rate environment, particularly if your mortgage payment is large, the interest you earn during the float could add up.
There are third-party services that help you pay your mortgage using your credit card, but the fees they charge will probably exceed the credit card rewards you would receive. For example, if the fee is 2% of your mortgage and your credit card pays 1% cash back, you’ll lose money by paying this way.
There is one viable option that lets you combine mortgage payments with credit card rewards. Some lenders offer a cash-back credit card that automatically applies your cash back to your mortgage principal. This automated savings feature ensures that you put your credit card rewards to good use instead of spending them at the mall. If you miss a credit card payment or carry a balance, however, the credit card won’t actually help you. The interest and late fees you’ll pay will far exceed your cash back rewards.