Credit Cards and Mortgages
Big-picture statistics relating to the real estate industry are notoriously hard to pin down. However, according to several sources of mortgage-related statistics, about one-sixth of all homes in the U.S. are currently worth less than their mortgages. This is about 12 million homes. Broad-brush estimates of mortgage delinquencies suggest that as many as one in eleven homes in the U.S. is currently either in default or in foreclosure.
The Intersection of Credit Card Highway and Mortgage Lane
The real estate market is under water, unemployment is rising, and many homeowners are under pressure to find a way to make a mortgage payment. Debt management under these conditions can force consumers to take a hard look at whatever options might be available. One of those options is using a credit card to make a mortgage payment.
Should I Pay My Mortgage With My Credit Card?
This is a tough question, and the answer is usually “no.” It is generally not a good idea to use a credit card to make a home payment. However before addressing the “no” part of this issue, let’s look at the “yes” part.
The Rare “Yes” Case
Let’s assume that you happen to have enough money in your bank account to cover your mortgage payment. Let’s assume that your business travel schedule has kept you on the road unexpectedly for a few days longer than expected. Your mortgage payment is due, and circumstances force you to make the payment with your credit card. This exception to the rule makes sense for two reasons: 1) it is unavoidable, and 2) you have the funds required to cover the payment. One other point needs to be made here: you should only do this with a credit card that does not charge you interest on a carried balance and you should pay it off immediately with the funds in your bank account.
The More Common “No” Case
Mortgage payments are normally large. They represent a significant portion of the normal monthly household budget. They consist of principle and interest payments. Early on in the life of a mortgage loan, most of the payment is interest. If you pay your mortgage with a credit card, you will basically be charged interest to pay interest. This is a poor business practice.
Credit-Card Interest Is About 2.4 Times Mortgage Interest
For the sake of argument, let’s say credit-card APRs run about 15% on average (this is actually a reasonable approximation of the current average). Let’s also say that the average 15-year fixed-rate mortgage is about 6.25% (also a reasonable guess). If you pay your mortgage with your credit card at these rates and are unable to pay off the credit card immediately, you are effectively paying about 2.4 times more interest that if you had not used a credit card.
The End Result Is Financial Disaster
This leverage is unsustainable for any extended period of time and is almost certain to end with both foreclosure of the home and revocation of the credit card. These events will hammer your credit score and scar your credit report, making it difficult (if not impossible) to get credit in the future.
The bottom line? Keep mortgage debt and credit-card debt separate.
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