Most people make their mortgage repayments by automated direct debit from their bank account, simply because that's the only option they were offered at the time their mortgage was granted. The banks, of course, prefer it this way. For them it's painless and profitable. But what if you could make your mortgage payments with a credit card, delaying the date at which the payment reduces the balance in your savings or mortgage offset account by up to 55 days? Even better, if you make the payment with a rewards credit card, you could earn valuable rewards or frequent flyer points.
Read on to find out how it's done.
How to use your credit card to offset your home loan repayments
Australian home loan lenders will not allow you to have your home loan repayments regularly charged to a credit card as if it were a normal purchase. Any such charge would count as a cash advance. This means that it would immediately attract interest – often at a rate of 20%+ p.a. – and also a once-off cash advance fee. It's an option you should only consider in exceptional circumstances, such as temporary cash flow problems.
But consider this. If you use your credit card to pay every single bill you possibly can – from your takeaway coffee right through to your supermarket, fashion, appliance and technology purchases and utility bills – you can effectively delay those payments by taking advantage of up to 55 days interest-free credit, and save the cash in your bank account for paying off your mortgage. In other words, as long as you don't spend more than you can afford to repay in full each month, you're using your credit card, interest-free and while earning points, to fund your mortgage repayments.
How to pay your home loan with a credit card if the bank won't accept them
There is also a way to charge home loan repayments indirectly to your credit card and still earn points.
Simply use a payment processing service like Easy Bill Pay or Sniip (and there are even more service options if you have an ABN). In most cases, you simply nominate the monthly bill you wish to pay (in this case, your home loan payment) and the method by which you wish to fund it (by automated direct debit to your nominated rewards credit card). Your bank should treat the card payments in the same way as purchases, so you will earn those valuable rewards or frequent flyer points.
However, each of these payment processing services charges a fee, including merchant fees ranging from 1% to 1.5% of the transaction value, plus, in some cases, a monthly account keeping fee. You will need to work out whether the cost of the service you choose is less than the value you place on the points you can earn (in which case you're ahead) or whether the cost exceeds the points value (in which case do not proceed).
Pros and cons
- You can earn valuable rewards points if you offset your home loan repayments with other credit card payments or use a payment processing service.
- Payment processors can be used for other payments that don't usually earn credit card rewards points, such as ATO payments.
- Taking care of regular bills via a payment processor saves time and hassle.
- You may end up in high-interest long-term debt if you spend more on your credit card each month than you can afford to repay.
- Payment processor service fees may exceed the value of the points you earn.
- Some payment processors have restrictions on the types of payment you can make.
Can an American Express card be used to pay for a mortgage?
You can use an American Express card to offset your mortgage payments, or make payments via a payment processing service, in the same way as you can with Visa or Mastercard. Some services may charge a higher merchant fee for Amex cards.
Can you pay a home loan deposit with a credit card?
Most home loan lenders would regard this as a high-risk move, and even if they did not refuse it outright, it might jeopardise your chances of the loan approval proceeding. You could take a cash advance from your card as a short-term top-up strategy, but beware of the high cash advance interest rate. Read our guide to paying a home loan deposit with a credit card.
How do I work out the value of my rewards points to check whether a payment processing service is worthwhile?
It depends on how you redeem your points. The value of the rewards / points required for redemption = per point value. If, for example, your card earns 1.0 points per dollar, you need a per point value greater than 1.0 to 1.5 cents, which can usually be achieved with frequent flyer points (especially for business class fares or upgrades), or sometimes by converting rewards points to frequent flyer points. Swapping points for merchandise or gift cards is unlikely to be worthwhile.