CardIt: Too Much for Paying My Mortgage with Credit Cards
I am a credit card person. If possible, I will use credit cards to pay everything so I earn rewards for the money that I have to spend anyway.
Half a year ago, American Express announced that it will let members make mortgage payments with AMEX cards. The news generated quite some buzz as it marked the first time that a major card issuer allows cardholders to pay mortgage and earn rewards at the same time. Though the first mortgage provider (American Home Mortgage) signed up with AMEX to provide the service has gone out of business in the summer, the idea was an exciting one as mortgage is probably the single largest payment every homeowner has to make every month. It would be great if we can get some back. Too bad my lender, Countrywide, is not part of the deal (Countrywide does offer its own credit card, issued by FirstUSA, and the rewards can be used to pay off mortgage).
Last week when browsing the latest issue of Kiplinger’s Personal Finance, I noticed a small piece in the magazine that mentions a website called CardIt which also allows Visa, MasterCard, and Discover card members to pay their mortgages with the plastics. Of course, like any other convenient services (such as paying taxes with credit cards), there are fees involved. Since the only reason I want to use credit cards to pay mortgage is to get cashbacks, it only makes sense if the benefit (the rewards earned and savings on interests) outweighs the cost (the fees). That, however, is not the case. On CardIt’s website, it lists the cost of using the service:
What’s the catch? Are there fees?
No catch – you make a one-time secure payment and all of your personal information is protected. There is a fee per transaction associated with our service. The fee is 2.49% of the payment amount plus a fixed $19.99 charge per transaction. In other words, a $1,000 payment with Cardit will produce exactly $44.90 in fees. The interest rate of the credit card remains unaffected as do the reward plans. Your credit card company views it the same as any other transaction.
So basically, I have to pay 4.49% fees to get the maximum of 3% cashback (Chase Freedom card can give me 3% back) if my monthly mortgage payment is $1,000. And for most credit cards, the rewards are probably at 1% instead of 3%. Even at 3%, my monthly mortgage payment has to be at least $3,919 to just break even.
Sorry, I only have a small house and a small mortgage.
For whatever its worth, this service is not for me. Probably not for anybody else either.
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however there are cases where you can use a card to make payments and get that cash back. I used one of my other cards to pay my rent because there was no fee associated with paying the rent by card.
Since I now carry a balance on the card it is no longer profitable for me to use it this way, but when I get the balance back down to zero it will be worth it.
Our mortgage is with Countrywide so we got the Countrywide Visa. This card gives you 2% on all purchases if you have the rewards credited to your mortgage. So for every $2500 charged we get $50 off our mortgage. We still use the Chase Freedom for 3% off gas & groceries.
I see your point, but you may be a little quick to arrive at your conclusion here. First off, to blanket 4.49% is misleading: average mortgage payments (atleast where I live) are usually higher than that. My math says a $2,000 payment ends with a total fee closer to 3.4% . . . which is a helluva lot better than the 5% late fee I had to tack on a few months ago.
I’ve never been a big fan of credit card rewards programs… They’re just too much effort to get 1% or 2% back on the money I spend… It’s a lot easier to find a big bargain and save 5% to 10% on my purchases than to make sure I use my credit card every single time.
DRoth: Yes, I may have arrived my conclusion too fast. However, with a card that pays 3% cashback, you will have to spend $3919 on monthly mortgage payment to just break even (whether mortgage payment is eligible for
cashback is another question) and there aren’t many cards give 3% back. The idea is fine and the service is quite convenient, but all of these don’t seem to justify the high fee, in my opinion.
FinanceIsPersonal: Finding a good bargain and getting cashback from credit card don’t compete against each other that you get one but don’t get the other. You can have both. How about save 5% to 10% on your purchase and get an extra 1 or 2% from credit card rewards program?
Could I ask why you don’t simply focus on paying off the mortgage as soon as possible, instead of moving debt from place to place?
NCN
NCN: The reason for not trying to pay off mortgage as soon as possible is that I believe in the long term, the money can get better return when invested in stocks than used to pay mortgage which is at a fixed rate. Of course, that depends on what kind of return I can get from the stock market. I haven’t done any calculation so I don’t know exactly how much I will gain from the stock market. But if I have a loan of 30 years at 6%, there’s a good chance that the return from stock market can beat that.
Do your homework done first if you are thinking about taking out a loan or mortgage. The time spent looking into your options can save you a good deal of money later on.