The Pros and Cons of Popular Mortgage Payment Options

The fact of the matter is, mortgage lenders generally don't care how you pay your mortgage, so long as you pay your mortgage. But what's good for the lender isn't always good for the borrower!

There are a lot of ways a homeowner can choose to make their monthly installments. Check, automatic withdrawal, and credit cards are three of the most popular ways people use to pay their lender on time. The way you decide to make your payments could set you up for success or leave you dealing with hefty fees or penalties.

Here are the pros and cons of popular mortgage payment options so that you can decide which method is right for you.

Personal Check

Pros

If you use personal checks to pay for things, odds are you know how to balance a checkbook. That means that you pay close attention to the money coming in and going out and are likely to have a good idea of what's in your bank account. That can help lower the possibility of a bounced check, great news when it comes to building trustworthiness with a lender.

Cons

The downside of paying your mortgage with a check? Well, unfortunately, there are a few. The first is that a check leaves you very vulnerable when it comes to identity theft. One single check contains sensitive information, like your bank routing number, full name, and address. Should that check fall into hands other than your mortgage lender's, your sensitive information is at serious risk.

Another downside is that once you've mailed the check, you have no way of knowing when it gets there. A delay in the mail could mean your once-on-time mortgage payment is now days late. In this situation, arguing your case to avoid late fees, while probably successful, could be a massive inconvenience.

Here's a common problem with checks that homeowners don't think about: if you're in a hurry and your signature doesn't match what's on file, the bank may deny the payment. That may mean that you've incurred late fees.

Automatic Withdraws

Pros

Many mortgage lenders and banking institutions have automatic withdrawal services that borrowers can utilize, which means you can pay your mortgage on time every month without even thinking about it.

There is typically a way to track your payments as well, making it easy to prove that you've paid your installments on time over the years, which may give you some negotiating power should it ever come time to refinance.

Automatic payments are great options for those with a steady source of income who know they'll have the funds readily available.

Cons

As with any online system, it isn't 100 percent secure 100 percent of the time. There is always the chance that a hacker can crack into the system and get their hands on your sensitive information. Is it very likely? No, as security precautions for these types of banking/mortgage payment sites are taken very seriously. But, it is still a possibility. As with anything in life, you have to determine if the potential cons outweigh the pros.

Another thing to consider is your financial situation. Should you not have enough money in your account when the time comes to withdraw the funds, you may be hit hard with penalty fees. Since you don't have to put any thought into automatic payments once they've been set up, you may forget to adjust them if your financial situation changes.

Because automatic payments do take little thought, they may also end up costing you money. How so? Because you simply forget about them over time. Since you have your routine, you may be less inclined to explore refinancing opportunities when they arise, like when rates drop to historic lows, like they are now. You could even forget that the fixed period on your adjustable-rate mortgage is coming to an end, which means your payments are likely about to increase.

Credit Card

Pros

Let's be clear about one thing: It is only under limited circumstances that a person can benefit from paying their mortgage with a credit card.

But, yes, there can be benefits. It's important to note that most providers don't accept a credit card directly, if at all. That means you'll need to use a third-party payment processor, which could leave your information vulnerable and subject you to a payment processing fee. Every lender is different, so if you're thinking about using a credit card for your next installment, make sure you understand your lender's requirements for doing so. You don't want to wait until the last minute to find out that your lender doesn't accept credit card payments at all.

The pro of paying with a credit card? Your mortgage has been paid, and you may earn rewards depending on the card you have. It can also buy you a little time if your financial situation has changed.

Cons

Processing fees may be high for third-party payment processors, and you'll need to pay your balance in full each month so that you don't add to your debt. If you fall behind, then you'll likely be dealing with hefty interest rates.

It's important to understand that paying with a credit card could affect your credit utilization rate and, in turn, your credit score. For all of these reasons, credit cards should be a last resort, and only if you understand all of the implications that go along with that decision.

How You Pay and Who You Pay Matter!

Yes, it matters how you pay your mortgage. But the terms of your mortgage matter, too! If you don't compare mortgage lenders right off the bat, you could be paying more than necessary.

Before settling on a lender or choosing a refinance provider, use Lendgo to easily connect with lenders. Then, you can handpick your mortgage provider, confident that you're getting competitive rates that help you save.

Homeowners will agree that paying your mortgage by check, automatic withdrawal, or with a credit card is better than not paying your mortgage at all. If you have some breathing room when it comes to your finances, carefully weigh the payment options that your mortgage provider will accept. Compare fees, convenience, and safety aspects of each before deciding on the route that best suits your financial situation and lifestyle.