New Program Allows Consumers to Pay Mortgage with Credit Cards

ChargeSmart LLC of San Francisco, Calif. Wednesday announced the launch of an online payment service aimed at consumers looking to pay mortgage, auto and student loans with their credit cards. The service works with Visa and MasterCard issuers and a network of more than 4,000 billers across the country.

Customers submit payments directly to ChargeSmart and indicate the amount they wish to pay and the recipient. The ChargeSmart system accepts, processes and remits payments electronically.

Users of the service will pay a transaction fee of $4.95, plus 2.29 percent of the amount charged. Those fees go to ChargeSmart. If the borrower defaults on the credit card payment, it becomes an issue between the cardholder and the card issuer, according to Mitch Friedman, one of the ChargeSmart founders.

“Since the IRS started accepting credit cards, nearly 2 million people have [paid taxes that way],” said Friedman, who pointed to the success of the IRS program as the impetus for the ChargeSmart program. “We kept the rates as low as we could go.”

The IRS program uses a handful of different payment providers, with some charging a flat $2.95, and others charging fees of 2.49 percent to 3.93 percent, according to the IRS Web site.

Friedman expects consumers to be drawn to the ChargeSmart program for the same reason he said they were drawn to the IRS program – convenience, the availability of a float and the rewards benefits that many of the charge cards offer. Once the float (with the money invested for the entire period) and the value of the rewards are factored in, they negate much of the fees, according to Friedman.

In some extreme cases -- a high mortgage payment, a payment near the beginning of the charge card billing cycle and a valuable card rewards program -- the consumer can even come out ahead, according to Friedman. He points to examples on the company’s Web site: https://www.chargesmart.com/how_it_works.
 
But at least one analyst questions the program’s potential.

“Consumers are not hard-pressed to make payments on their cards to earn miles, and I think it’s a losing proposition for the end consumer,” Adil Moussa, an analyst with Aite Group, told insideARM. “If we take an example of a consumer who pays an $800 mortgage, the cost of this operation will be $18.32 (2.29% of $800) plus $4.95 (flat fee) for a total of $23.27. According to an example given on Smart Charge’s Web site, a mile is worth $0.02, the consumer will earn $16 in miles or points and we have not yet factored in the cost of the payment to pay the credit card bill afterwards.

“The trend in the market is to avoid charges not to incur them and consumers, especially in light of the current economic situation will not add more burdens for a convenience that turns out to be very pricey,” Moussa added.