No reward for paying your mortgage with a credit card

A friend recently asked if it was possible to pay her mortgage with a credit card to earn rewards.

I admire her efforts to make the most of her spending, but there's just no way for this to work for most people.

You can't pay your mortgage directly with a credit card because lenders won't allow it.

And while there is a roundabout way to pay through one third-party online service, transaction fees eat into any rewards most homeowners might earn.

"The issue lenders have with paying the mortgage with a credit card is that it is setting the borrower up to increase debt load and compounding interest," says Chad Jampedro, chief operating officer of Brookfield, Wis.-based GSF Mortgage.

Mortgage debt has a structured repayment schedule, but credit card debt does not.

And that spells trouble.

You could make the minimum payment on the credit card, max it out, then find yourself with no way to pay the mortgage -- or your massive credit card debt.

A bad idea all around.

Indeed, had my friend asked a few years ago about paying a mortgage via credit card, the answer would have been yes.

American Express introduced a program in 2007 that allowed IndyMac and American Home Mortgage Corp. customers to charge their mortgage payments to their Amex cards.

These borrowers had to opt into the program at the closing table and pay a $395 enrollment fee.

But both lenders were casualties of the housing crisis, and the Amex program appears to have vanished along with them.

A third-party service called Cardlt also debuted in 2007 to allow consumers to pay their mortgages with plastic.

It charged a fee of 2.49% plus $19.95 per transaction. This service, which would have charged you $44.85 to make a $1,000 mortgage payment, has also disappeared.

In today’s market, the only options for paying the mortgage with a credit card are balance transfer checks, cash advances and a third-party payment service called ChargeSmart.

Using a balance transfer check to pay your mortgage makes no sense.

You don’t earn credit card rewards on balance transfers, and even a low-fee balance transfer will almost always cost you at least 3%.

Cash advances are an even worse option because of the high interest rate you’ll pay on these transactions. Also, like balance transfers, cash advances don’t earn rewards.

That leaves ChargeSmart, a company that allows you to pay all sorts of bills online -- utilities, auto loans, student loans and mortgages -- with your Visa, MasterCard or Discover (but not American Express).

In exchange for providing this service, ChargeSmart collects either a flat fee or a flat fee plus a percentage of the transaction.

ChargeSmart touts earning credit card rewards as one of the primary benefits of using its service and states that your total payment, including fees, will be eligible to receive rewards just like you do on your retail credit card purchases.

ChargeSmart lets you make mortgage payments to dozens of lenders.

We looked at what the fee would be for each one for a $1,000 mortgage payment.

The fees ranged from $14.95 to $39.95, depending on the mortgage lender. The most common fee was $27.85.

With the most common fee on a $1,000 mortgage payment, your credit card would need to give you 3% back on the transaction for you to just barely come out ahead. (Of course, the rewards would be larger with a larger mortgage payment.)

A handful of credit cards give you the equivalent of 2% back on this type of transaction, but most rewards cards would only give you 1% back.

In the end, most consumers would lose $17.85 by making a mortgage payment through ChargeSmart.

That's not very rewarding.