There's No Reward for Paying Your Mortgage with a Credit Card

Photo: Mohammed Malik

A friend recently asked if it was possible to pay her mortgage with a credit card to earn rewards.

I admire her efforts to make the most of her spending, but there's just no way for this to work for most people.

You can't pay your mortgage directly with a credit card because lenders won't allow it.

And while there is a roundabout way to pay through one third-party online service, transaction fees eat into any rewards most homeowners might earn.

Read about this process in my article, No Reward for Paying Your Mortgage with a Credit Card.

If you're not "most people," however, you might be able to come out ahead through a service called ChargeSmart, but only by making several months’ worth of mortgage payments at once. It depends on the fee structure for your particular lender. 

Let's say you want to make a $6,000 mortgage payment and your lender is Wells Fargo. ChargeSmart's fee to make this payment is $24.95. If you earn 1% in credit card rewards, that's a $60 reward. After the $24.95 fee, you'll come out ahead by $35.05.

ChargeSmart says that “larger than standard payments may require additional authorization and/or a large payment security fee” to help the company cover its fraud insurance costs. So you can probably only come out ahead so far by making a large mortgage payment before you get hit with extra fees.

Assuming that $6,000 is substantially more than your monthly mortgage payment, you'll need to contact your lender to make sure they correctly categorize your large payment. Do you want it to cover your next several monthly payments, or do you want it to be considered prepaid principal?

If $6,000 represents more than one monthly payment, you’ll need to consider the opportunity cost of sending the money to your lender early rather than investing it. Let's say your monthly payment is only $1,000, so $6,000 represents 6 months' of mortgage payments.

Ally Bank has some of the highest CD rates right now. It's currently paying 0.74% APY on a 6-month CD. If you invested the $6,000 in a 6-month CD, you'd earn $22.42. So now you're only coming out ahead by $12.63 to make a massive mortgage payment all at once.

Personally, I'll sacrifice the $12.63 for the security of stashing the money in a CD where I can access it in case of an emergency.

But if you already have all the emergency cash you could ever need and cash to spare to make a very large mortgage payment (or if your monthly mortgage payment is much larger than average), paying your mortgage through ChargeSmart using a cash-back credit card will let you earn a little (and I mean a little) extra scratch.

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