Given the recent rise in cost of living and the ever-increasing financial pressures faced by property investors and developers, it is important to understand the various ways in which homeowners can manage their mortgage payments. A commonly asked question by clients is whether a credit card is a viable option for mortgage repayments. While it may appear to be an attractive option for borrowers, there are a number of important factors to consider. As specialists in mortgage bridging loans and property bridging loans, we explore the feasibility, risks, and alternatives to using a credit card for mortgage payments.
Can You Pay a Mortgage with a Credit Card?
Most mortgage lenders in the UK do not accept direct credit card payments for monthly mortgage instalments. However, some workarounds exist, such as using a third-party payment processor or withdrawing cash from a credit card. While these methods may allow you to use a credit card for mortgage payments, they often come with significant costs and risks.
Workarounds to Consider:
- Third-Party Payment Processors – Some platforms, like Curve or Billhop, facilitate payments to companies that do not directly accept credit cards, including mortgage lenders. However, these services charge transaction fees that can quickly add up.
- Cash Advances – Some borrowers take out a cash advance on their credit card to cover mortgage payments. However, cash advances usually incur high-interest rates, additional fees, and no interest-free grace period.
The Risks of Paying a Mortgage with a Credit Card
Using a credit card to cover mortgage payments is not a sustainable financial strategy. Here are some key risks:
1. High-Interest Rates
Credit card interest rates are significantly higher than mortgage interest rates. Most mortgages have rates between 2% and 6%, whereas credit card interest can exceed 20% APR. If the balance is not paid off immediately, interest can accumulate rapidly.
2. Potential Impact on Credit Score
Using a credit card for mortgage payments can increase your credit utilisation ratio, potentially lowering your credit score. A lower credit score can make it harder to secure future loans or refinancing options.
3. Additional Fees
Even if a third-party payment processor enables mortgage payments via credit card, transaction fees (typically between 2% and 3%) can add to the financial burden.
4. Risk of Falling into a Debt Cycle
Relying on credit to cover essential expenses can lead to long-term debt issues. If you are struggling to make mortgage payments, it may be a sign that you need alternative financial solutions rather than accumulating more debt.
Alternative Solutions for Mortgage Payment Challenges
Instead of using a credit card to cover mortgage payments, consider these alternatives:
1. Mortgage Bridging Loans
If you’re facing short-term financial difficulties, a mortgage bridging loan can provide temporary relief. These short-term loans help homeowners cover urgent mortgage payments while waiting for long-term financing or property sales to be completed.
2. Property Bridging Loans
For property investors or homeowners looking to manage cash flow, property bridging loans can be used to secure quick funding. This is particularly useful for those awaiting the sale of a property or needing immediate liquidity.
3. Remortgaging
If mortgage repayments have become unmanageable, remortgaging could be a viable option. Refinancing your mortgage at a lower interest rate may help reduce monthly payments and ease financial pressure.
4. Speaking to Your Lender
If you are struggling with payments, contacting your mortgage lender directly may open up options such as payment holidays, loan modifications, or extending the mortgage term to lower monthly repayments.
Conclusion
While technically possible in some cases, paying your mortgage with a credit card is rarely a good financial decision due to high costs and potential risks. Instead, exploring solutions like mortgage bridging loans, property bridging loans, or remortgaging can provide more sustainable ways to manage financial difficulties. If you’re facing mortgage payment challenges, speak to a professional mortgage broker to explore the best financing options tailored to your needs.