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Is It Smart to Use a Personal Loan to Pay a Mortgage or Property Taxes?

[Mar 21, 2010.]


Unfortunately, many people find themselves in the situation today of having too many bills and not enough income. According to statistics from credit reporting bureau TransUnion, the new trend is for people to pay off their credit cards or other personal loans before paying their mortgage.

If this trend continues, it would represent a massive shift in the way people think about homes and mortgages as opposed to "unsecured" debt such as a credit card or personal loan.

The emergence of these surprising statistics begs the question: Is it smart to use a personal loan to pay a mortgage or property taxes?

First, Contact the Lenders

No one yet knows how a continuation of paying personal debts before mortgages will impact credit scores in the future. After all, the credit bureaus are always free to change the rules of how these calculations are made, and they will do exactly that if it does not seem that credit risk is being accurately portrayed.

For this reason, it is definitely not a good idea to assume that just because "everyone's doing it" (that is, not paying their mortgage), that means it's a good idea.

On the contrary, any decision to use a personal loan or even a credit card in order to pay a mortgage should begin with contacting both lenders to see what kind of "workout" can be developed. If the mortgage bank is not willing to make concessions, OK, but at least it's worth that first call.

Mortgage No, Property Taxes Maybe

Paying a mortgage with a personal loan is a tough pill to swallow because the typical interest rates on a personal loan are going to be much higher than mortgage rates. More problematic still, taking out a personal loan to pay the mortgage, if nothing changes next month, is just a form of treading water.

Unless extenuating circumstances are present--for example, a borrower is going to be able to pay back the personal loan within a short time period--it is not a great solution to pay a mortgage with a personal loan.

For property taxes, however, it may be worth borrowing money in order to stay current. You owe property taxes to the county, and counties and states are increasingly desperate to collect these fees. Banks that hold mortgages, believe it or not, may be less imposing to deal with than an angry assessor.

Either way, borrowers need to be aware of both the costs and the benefits of choosing to pay a mortgage and/or property taxes by using unsecured personal loans.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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