Credit cards are handy and becoming increasingly popular for paying regular bills. Some are even using credit cards to make their mortgage payment when it’s an option. Doing so is tempting, but is it smart?
Credit Card Options for Paying a Mortgage
First off, most mortgage companies often refuse to accept credit as a form of payment because of processing fees. Those that accept them usually charge a fee, which could negate the rewards you would earn. Even then, the mortgage company might process the transaction as a cash advance, which begins accruing interest from the day of the purchase, adding interest to the expense. The preferred method for earning points on your rewards card by paying your mortgage involves a few extra steps these days.
Paying Bills by Credit Card Is a Process
Many people use prepaid cards that include bill pay services such as Target’s REDcard, Wal-Mart’s Bluebird or AMEX Serve to assist in the process. These cards allow you to pay bills and you can load them if you have a PIN-enabled credit card. So, you have to use your rewards card to purchase VISA or MasterCard gift cards that include a PIN feature first. You can then load your prepaid card with the gift card and then pay your bills. But that adds more expense because these cards charge an activation fee of $5 to $7. Since these typically come in maximum amounts of $500, the fees quickly add up, eating into any rewards you might gain.
Even the best rewards cards limit your bonus rewards to $2,000 per quarter at best. Those cards must be bought within the bonus categories, so you’d have to buy them at a grocery store during a bonus period that includes groceries in the bonus category. Office supply stores might be an option as well. Just matching up these opportunities is a challenge.
Even when you’ve done that, you would earn $100 cash back at most, but have to spend about $30 activating the gift cards you use to make it happen. That may be sensible… but only if you have a lot of time on your hands and can match up your spending categories. If you don’t have the option of buying gift cards through a bonus rewards category, you would only earn one percent back, or $10 for every $1,000 you spend. That’s far more than the cost of the gift card activation. If all of this seems like a lot of work… it is.
Look for Cash Back Tied to Your Mortgage
Your best option for cash back on the mortgage payment is to look for a bank that issues cash back rewards onto the mortgage itself. This gives you cash back that reduces your mortgage balance with the least effort.