I've used free travel rewards from credit cards for several international and domestic trips over the years, saving thousands of dollars.
When Does it Make Sense to Pay Your Mortgage by Credit Card?
For more than thirty years I've been traveling for free or at a highly reduced rate by redeeming rewards miles or points from credit cards that I use for everyday purchases. Recently I began paying my mortgage payment with a credit card to earn extra rewards points. Unfortunately this strategy has its limitations and may not work for all people. A handful of mortgage companies accept credit cards for monthly payments, as do money transfer services such as MoneyGram or Plastiq. There's a fee for using your credit card for either of these. How much you earn depends on the difference between the "convenience fee" your lender or a money transfer company charges and the dollar value of any rewards points you might earn.
For paying a mortgage payment with a credit card to really make sense, you should earn a dollar value in points or miles that exceeds the fee charged for using your credit card to pay your mortgage.
High Rewards Cards are Best
Let's start with assuming that your credit card offers reward points and that those points are worth approximately one cent each. For many cards this is the amount that one point is worth when cashed in as statement credit. Often you are able to squeeze more value per point by converting them over to an airline rewards program at a 1:1.5 or better ratio.
Some cards, such as Capital One's Venture card, pay 2 points for each dollar spent, which when converted to cash are worth two cents. Other cards, such as the Bank of America Travel Rewards Card, pay 1.5 points per dollar spent. Some cards pay more for certain categories, such as gas stations or restaurants, but for purposes of this example we're only going to consider the amount of points a card pays for services such as direct bill payment or use of a money transfer service.
MoneyGram and the Capital One Venture Card
There are several sites on the web, such as Nerdwallet.com and ThePointsGuy.com which discuss the merits of different rewards credit cards. One of the highest rated on these sites is the Capital One Venture card, which I personally use, and which pays two cents for each dollar spent. When I use the site MoneyGram to pay my mortgage, that site charges a 1.7% fee to use my card to send a payment to my mortgage company. This fee varies from lender to lender, which is important to know. If it uses that service, your own mortgage company may have negotiated a higher or lower fee with MoneyGram.
For each mortgage payment that I make using my Capital One Venture card and Moneygram, I earn 0.3% net profit. While this doesn't seem like very much, If I were to make a $1,500 mortgage payment each month using this method, I'd earn $4.50 each time. While that's not going to make me rich anytime soon, it's pretty much free money, since it took very little effort to earn. If I were to make an extra principal payment of say $500, the amount I would make goes up to $6.00.
Obviously paying your mortgage payment by credit card isn't going to allow you to buy a yacht or summer a home in France, but there may be another reason you still might want to try it.
Earning Introductory Bonus Points
Many credit cards offer introductory bonus points for new users who charge a minimum amount within a specified period. For example, the Capital One Venture card offers new card members 60,000 rewards points if they spend $3,000 within the first three months after opening an account. The Chase Sapphire card offers new card members 60,000 points if they spend $4,000 within the first three months.The value of the Venture card's sign up bonus is roughly $850 and for the Sapphire card it's around $1,200 when redeemed for certain travel, or around $600 in cash for each of them when redeemed for statement credit.
Let's take the Capital One Venture card when used on Plastiq for an example. Even if you are paying more in convenience fees than you get in individual points, it still can be a win-win situation. If you spend $3,000 (the amount required to earn your bonus points) by paying your mortgage in one or more payments, and if you cancel the card at the end of the year, the math looks like this:
$600* Value of introductory bonus points.
- $95 Annual fee
- $85 Convenience fee (Plastiq at 2.85%)
= $420 Profit in your pocket
* Introductory points may have more value when used on certain sites or when converted to airline frequent flyer miles.
Now you may see how paying your mortgage using a site such as MoneyGram or Plastiq makes more sense. It can be difficult for some people to spend the required minimum to qualify for these generous reward offers, but not if they use their card to pay higher bills such as mortgage payments.
What to Watch Out For
When signing up for any credit card offer, make sure that you're aware of things like annual fees and interest charged on any balance that is carried over to the next month. Also, when using any money transfer service, make sure that your lender accepts payments via that company. Some money transfer services are not liable for money that's lost if a customer supplies incorrect information, such as the wrong account number or payee code, so pay close attention to the fine print. Also, if you're in the process of getting a mortgage or other loan it may be best to avoid applying for a new credit card, as this may affect your credit score.
This article is based on my own experience using several different rewards cards over the years, your own mileage may vary.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2021 Nolen Hart