How Not to Pay for a House

How Not to Pay for a House: With PlasticMany homeowners struggling to keep up with mortgage payments are probably using their credit cards to make ends meet. Now, apparently, people who can’t pay their mortgages have a new alternative: they can charge their monthly mortgage payments to a credit card directly. I wish I were making this up, but I’m not.

Paul Jackson at has noted various firms that let people make mortgage payments with plastic.  Last year, American Express, which should know better, began piloting a charge-your-mortgage-payment service in collaboration with two mortgage lenders that are (surprise!) now down for the count.  Actually, that’s not quite fair: American Home Mortgage filed for bankruptcy about a year ago, while IndyMac Bancorp is solvent but stopped originating new mortgages just this week and laid off half its workforce.

Aside from the obvious lunacy of converting your mortgage debt into consumer debt at 18+% interest, the service being offered by ChargeSmart LLC (and probably others) involves additional fees for each transaction.  It is possible, in some instances, that a household faced with a short-term financial interruption could put this kind of service to good use, but the risks of having it spiral into disaster seem substantial.  People who are on the brink of serious financial trouble usually don’t realize it at first; a homeowner could easily use this service believing it to be a one-time quick fix and end up maxing out his credit cards in short order.

The folks at ChargeSmart are claiming that this is a sophisticated way for a cardholder to take advantage of the 30-day credit card “float” without paying additional interest.  But only if your mortgage payment date is perfectly synchronized with your credit card date cycle will you actually get the full benefit of the float.  Anyway, I have a hard time believing that people who have the means to pay their mortgages are going to go to the trouble to get what will likely amount to a 20-day low-interest loan of $2,000 or so.  This service and others like it will more likely become one-way tickets to Palookaville for people who are in danger of defaulting on their mortgages.

Homeowners facing this situation are probably better off approaching their lenders at the first sign of trouble instead of reaching for a credit card.  If the circumstances that precipitate a cash shortfall don’t change, this scheme could easily backfire, with homeowners making minimum card payments each month as the interest snowballs.  Expect to see journalists writing painful human-interest stories about folks who got burned by this strategy in the coming year.

photo by: liewcf

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Thomas Fisher, CFP®

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