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Hull Financial Planning Personal Finance FAQ Series: Should I Pay My Mortgage With My Credit Card to Earn Rewards?

If you have a great rewards credit card, then it’s tempting to pay your mortgage payment with your credit card to earn the rewards. Does this plan work?

Take a look at the video below and find out what to do.

Should I Pay My Mortgage With My Credit Card to Earn Rewards?

The transcript follows.

If you have a credit card that gives you miles or money back, then it’s tempting to think that you can pay your mortgage with the credit card and earn those rewards. Nothing like getting a free round trip flight to somewhere in the world just for paying your mortgage for a year, right? This is the exact same question that we asked ourselves when we had a mortgage and a credit card that gave us 1% cash back on our purchases.

The problem with using a credit card to pay a mortgage is that the payment invariably will have enough fees associated with it to cause you to lose money doing so. There are two ways in which the fees will eat you up and make you spend even more money.

  1. Some credit cards will treat your mortgage payment as a cash advance. Usually, the cash advances come at a cost of 3% of the payment.
  2. Most mortgage companies will charge you a “convenience charge” for being able to pay your mortgage with a credit card rather than with cash. Again, this can run up to 3% of the payment.

The problem is that your costs will generally run at about 3% of your overall payment to be able to pay via credit card and your rewards are generally worth only 1% of your payment. Merchants have to pay between 1.5 and 3% to accept credit cards, so there’s almost no case where you’ll be able to make up the difference in the rewards you’ll accumulate for the “convenience.”

The best solution is still the old-fashioned way. Write a check, have the payment automatically deducted from your account, or pay in cash.

By

Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

3 replies on “Hull Financial Planning Personal Finance FAQ Series: Should I Pay My Mortgage With My Credit Card to Earn Rewards?”

What if you buy $500 Vanilla Visa cards, then use that money to fund a Walmart/Amex BlueBird card, and then use that money to buy money orders?

A $500 vanilla card is $4.95 to activate or 1%, put all $500 on your bluebird AMEX, buy a money order at Walmart ($1.50?), then pay your mortgage at the bank with the money order. If it’s possible, I wonder how the numbers pan out on that….

I’m not sure why the extra step. Use a high leverage rewards card (Starwood?) to buy the Vanilla Visa, which you can then use to buy the money order (or orders), which you then use to pay the mortgage. This assumes, of course, that you frequent Walmart and your bank enough that you’re not taking a separate trip just to do this (I have an article addressing that specific issue coming out next week). If you have to make a separate trip to do it, then you’ll probably lose what you’re gaining in paying extra gas/maintenance, not to mention the extra time you spent.

The Frequent Miler wrote up a corollary approach for paying your federal income taxes in approximately the same manner.

Maybe PT from PT Money could go in with you and write up a case study on the FatWallet blog. I’d be happy to link to it in the main article.

My bank, and Walmart are within a couple of miles, so gas wouldn’t be an issue. If you could find a grocery that sold the vanilla reload cards, and rang up as grocery, you could use the Amex Blue Cash Preferred for 6% on grocery (up to $6500 per year on grocery). I think it’s possible to come out ahead, but it might be more complicated and time consuming for the financial outcome (i.e. time is money).

I might have to dig into it more, just to see. 😛

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