Mortgage on a credit card (is it possible?)
In this brief guide, we are going to discuss getting a mortgage on a credit card, if it’s possible and the considerations you should be aware of.
Can you get a mortgage on a credit card?
No, you won’t be able to qualify for a mortgage using the funds you have in a credit card as these funds do not belong to you and are another form of borrowing.
When considering your mortgage affordability, a mortgage lender will want to see how much disposable income you have per month and how much of this you can reasonably put towards paying for your mortgage each month.
Most mortgage lenders will not consider any fund you have on your credit card as “your funds” and even if you move these funds to your bank account, the mortgage lender will still take the debts on your credit cards into account when figuring out your mortgage affordability and discount any debts against your savings.
Use a Government scheme
Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.
Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.
Government schemes are not available to you if you are getting a buy to let mortgage.
The Government schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
Can you pay for a mortgage with a credit card?
Yes, you can pay for your mortgage with a credit card by moving the funds from your mortgage to your bank account. Bear in mind that the credit card provider may charge you for doing this by levying a money transfer fee on the total funds moved.
Money transfer fees could be as much as 3%.
You could also pay for your mortgage with your credit card by simply calling the mortgage lender and making a card payment over the phone.
Another thing to consider when thinking of paying for your mortgage with your credit card is that your mortgage lender may not approve of this.
Some mortgage lenders will include in the mortgage contract that you cannot pay your monthly mortgage repayments with another form of debt.
Why paying for your mortgage with a credit card may not be good?
Paying for your mortgage with a credit card may not be a good idea as your credit card provider will charge you interest on any used funds from your credit card once your next statement period begins.
The APRs on credit cards are usually very high and this means this cost of borrowing could potentially cost you much more than you may have first imagined.
Credit card interest is also compounded interest which means that you could end up paying significantly more than you thought as your debt compounds.
This could lead you into much bigger debt issues and cause you to incur bad credit such as:
- County court judgements
- Mortgage defaults
- Missed credit repayments
- Home repossessions etc
Alternatives to paying for your mortgage with a credit card
If you are struggling to pay your mortgage then there are a few options you may want to consider before using your credit card to pay off your mortgage.
- Borrow from your family or friends
- Ask for a repayment holiday
- Apply for support for mortgage interest
- Use universal credit
- Use a personal loan
Get free debt advice
Are you finding it hard to keep up your repayments on your mortgage then you could get free debt advice from the organisations below:
0808 808 4000
0800 138 1111
In this brief guide, we discussed getting a mortgage on a credit card, if it’s possible and the considerations you should be aware of.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.