Smart Borrower Blog

Consumers Now Pay Mortgage before Credit Cards


Mar 19th, 2014 @ 12:45 PM by Amber Nelson


American consumers have once again made a shift in their financial priorities, putting auto debt in the top slot, followed by mortgage debt and credit card loans in last.

While consumers have always paid their car loans first, since September 2008 and onset of the financial crisis, Americans lost massive equity in their homes and weren’t quite as concerned about paying off their mortgages.  Yet now mortgages have again replaced credit card payments as the second most important debt, according to a new study from TransUnion.

“One of the biggest impacts of the Great Recession to the credit system was its influence on consumer payment patterns,” said Ezra Becker, co-author of the study and vice president of research and consulting for TransUnion said in a statement. “As unemployment rose and home prices cratered, increasingly more consumers were faced with financial constraints and had to make difficult choices — and many chose to value their credit card relationships above their mortgages.”

TransUnion used delinquency rates as evidence of their conclusions. Among those who have all three types of debt – auto, home and credit card – the 30-day delinquency rate for auto loans fell to 0.87 percent in December 2013, the mortgage delinquency rates slipped to 1.71 percent and the rate for credit cards was down to 1.83 percent. The previous year however, the delinquency rate on mortgages was higher than on credit cards. In September 2012, 1.04 percent of all car loans were 30 days delinquent, while 1.81 percent were late on credit cards and the rate was 2.42 percent of all mortgages.

Delinquency rates were certainly not uniform across the country though. It seems that the shift in repayment priorities is closely related to the local housing market. Markets that saw major upheavals during the housing crash have taken the longest to switch back to the “mortgage before credit card” philosophy while more stable housing areas saw the switch happen earlier. Dallas and Boston consumers, for example, started paying their mortgages before their credit cards again back in the fall of 2012, while areas like New York and Los Angeles are just now beginning to switch. Chicago has not yet seen consumers make the switch.

 

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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