Can you use your credit card to pay your mortgage?

If you’ve taken out a mortgage, failing to make repayments on time can affect you negatively in several ways. As well as being charged late payment fees, a long overdue mortgage repayment may be reported as a default in your credit history. 

Lenders can be particular about how you make repayments. Cheques were a traditional favourite, though electronic fund transfers are often considered more convenient. However, most lenders will not let you repay your mortgage using your credit card, which would effectively mean replacing one debt with another. 

Even if you are allowed to repay your mortgage through a credit card, there are still several reasons you may want to reconsider.

Why is using a credit card to pay off my mortgage risky?

Even if your lender allowed it, putting your mortgage repayments onto your credit card would mean being charged interest at a much higher rate. This could potentially put you at higher risk of more money troubles further down the line. 

Home loan interest rates may rise or fall when the Reserve Bank of Australia (RBA) adjusts the national cash rate, but they tend to be much lower than credit card interest rates, which are typically unaffected by the RBA cash rate.  

For example, according to the RateCity database at the end of May 2022, the average variable interest rate for an owner-occupied mortgage with principal and interest repayments was 3.37 per cent, while the average credit card interest rate was 16.20 per cent. 

Furthermore, a mortgage payment is unlikely to be considered a “purchase” when using a credit card, which would give you an interest free period (often 45 to 55 days) to clear your balance before interest charges would be applied. It’s more likely to be considered a cash advance, which typically means being charged interest at an even HIGHER rate, with no interest-free period.

Between the higher interest charges and the cost of mortgage repayments, you could find that putting mortgage payments on your credit card could quickly max out your credit limit. 

Are there any hacks to paying off my mortgage without excessive credit card debt?

If you find yourself in a situation where you’re unable to make mortgage repayments as per the schedule, consider discussing this with the lender. 

You may be able to pause or defer home loan repayments temporarily. This could potentially cost you more money over the longer term, as your interest charges are likely to be capitalised into your loan balance. Still, this may work out cheaper than the interest you might incur if you could pay using your credit card. 

Alternatively, check if you can refinance your mortgage at a more affordable interest rate. Compare home loans from other lenders and check the eligibility criteria to see if you may qualify.

You might need to review your household finances. Using your credit card to manage your household expenses could leave you with more of your income available to make mortgage repayments. Some borrowers deposit their income directly into their mortgage offset account to help minimise their interest charges, and manage their other household expenses with their credit card. Of course, you’d also need to repay the credit card debt in full or risk having to pay interest. 

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