Can you pay your mortgage with a credit card?

If you can tap your credit card for coffee, clothes and holidays, is it that much of a stretch to whip it out to pay for your mortgage? So, can you pay a home loan with a credit card? 

It might sound tempting to pay down your home loan with plastic, but the short answer is that you’re better off paying your monthly mortgage repayments with cold hard cash that’s yours – not credit.

Using a credit card simply swaps one type of debt for another and usually at a much higher cost.
In fact, in most cases, it’s not even possible. Lenders in Australia operate under tight regulations, which makes them cautious about options that could push borrowers further into debt.

That’s because, if you are able to pay a mortgage with a credit card (such as via a third party payment processor), it’s treated as a cash advance – which means you’ll be hit with a cash advance fee, lose your interest free days and end up paying a higher credit card interest rate on top of your home loan interest.

As a result, Australian lenders generally want your repayments to come from your everyday account, a linked offset account or another transaction account.

Why would you use a credit card for your mortgage?

There are some reasons homeowners might find the idea of using their credit card for mortgage payments appealing. But we don’t recommend any of them. Let’s bust some myths to show why you shouldn’t use a credit card for your mortgage.

Rewards points.

For some, the lure of rewards points is hard to resist. If you’re used to racking up frequent flyer miles or cashback on your everyday spending, you might wonder if paying your mortgage the same way could supercharge your rewards balance.

On paper it sounds clever – but in reality, the fees and interest charges from a cash advance will usually outweigh any points you might earn.

Short-term cashflow management.

We’ve all experienced unexpected expenses popping up. Using a credit card might feel like a handy workaround, giving you a few extra weeks to pull the money together.

While that short-term relief can look attractive, it comes at a steep cost once the higher interest rate kicks in, leaving you worse off in the long run.

Late-fee avoidance.

Nobody wants to be stung with a late repayment fee – or worse, a black mark on their credit report or the threat of repossession.

Some homeowners consider using a credit card as a last resort to avoid falling behind. While dodging a late fee might feel smart, it’s just swapping one headache for another and, unless you’re hawk-eyed about paying off your card in full, it can leave you in an even stickier situation.

Consolidate debt.

Another reason people flirt with the idea is to make life easier – rolling mortgage repayments into one card balance to keep it all in one place.

The idea is to then transfer that balance to a 0% interest card, giving some short-term breathing room and lower interest. In practice, fees, time limits, card rules and even one missed payment can make this approach costly.

The bigger issue is that mortgages and credit cards are very different types of debt.

What looks like consolidation is really just stacking expensive debt on top of cheaper debt – and unless you stay meticulously on top of it, it can escalate quickly.

Smarter alternatives to credit card payments.

Before you even think about swiping your credit card, here are some safer and more cost-effective ways to manage your mortgage repayments.

Offset accounts.

Linking your mortgage to an offset account can reduce the interest you pay without changing how you make your repayments.

The money in your offset account directly reduces your loan balance for interest calculations, helping you save over time.

Refinancing.

If your current mortgage rate is higher than what’s available elsewhere, refinancing could lower your repayments and free up cash flow, without resorting to expensive credit card debt.

Financial hardship assistance.

If you’re struggling to keep up with repayments, most lenders offer hardship programs. These can include temporary payment reductions, deferrals or restructuring options to help you stay on track.

Estimated extra costs of paying a mortgage with a credit card.

Let’s say you use your credit card to make your monthly $3,900 loan repayment (based on the average monthly mortgage repayment in Australia) via a third-party platform. Here’s how much extra it could cost you:

• Cash advance fee: $78 (based on average of $4, or 2% of the cash advance, whichever is greater)
• Credit card interest: $67.70 (based on the average rewards credit card rate of 20.83% p.a.  if you don’t pay back the loan repayment amount within the interest free period)
• Third party platform processing fee 117 (based on average 3%).

Total extra cost for the month is $262.70.
 
If you were to repeat this approach each month over the course of a year, you’d be up for an extra $3152.40 in fees and charges which could be close to a whole month’s mortgage repayment.

If you apply that over a 30-year term, you’d be paying approximately $94,572 in fees and charges to cover your loan – ouch.

Credit cards can be great if you spend within your means and pay your credit card balance in full by the due date. They’re not for everyone, and they’re certainly not for everything. If you’re looking for ways to maximise your home loan repayments, consider refinancing with ME.

We’ve launched a whole new way to home loan.

Good value and control go hand-in-hand, in the palm of your hands with our two brand new, fully digital home loans exclusive to the ME Go app.  Choose fee-free simplicity or full featured flexibility, and view, manage and customise your home loan right from the app.

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