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Owing money to the IRS can be stressful, especially if you’re not prepared for a tax bill. Whether it’s due to under-withholding, freelance income, or capital gains from selling an asset, you might find yourself facing a tax bill you can’t afford to cover up front. If that happens, you may wonder: Can I get a loan to pay taxes?

The answer is, yes. Taking out a loan, such as a personal loan, to pay taxes is an option. However, it’s important to weigh the pros and cons carefully against other possibilities like payment plans offered by the IRS.

Below, we explore what tax loans are, the available options for paying taxes when you’re short on cash, and the potential advantages and disadvantages of using a loan to cover your tax obligations.

What Is a Tax Loan and How Does it Work?

A tax loan is any form of financing used to pay off a tax debt. This can come in many forms, including personal loans, home equity loans/credit lines, payday loans, or even credit cards. These loans and credit lines are not issued by the IRS, but rather by private lenders, banks, or online financial institutions.

A tax loan allows you to pay your tax bill in full. You then repay the loan over time according to the lender’s terms. This could include fixed monthly payments over many months or years, along with interest and possible fees. Essentially, you’re swapping your debt to the IRS for a different kind of debt, one with a financial institution.

In some cases, the cost of a loan may be lower than the combination of interest and penalties the IRS charges if you don’t pay your taxes on time. Normally, the late-payment penalty is 0.5% of the unpaid taxes for each month the tax remains unpaid (not to exceed 25% of your unpaid taxes). The IRS also charges interest on your unpaid tax bill. The rate can change each quarter but was set to 7% for the third quarter of 2025.

Options to Pay Taxes

Before turning to a loan, it’s a good idea to consider all your options. The best choice for you will depend on your credit profile, financial health, and how quickly you can repay any borrowed funds.

IRS Payment Plans

The IRS offers payment plans, which you can apply for online. These plans allow you to spread the amount you owe into smaller payments without involving a third-party lender. Interest and penalties on your unpaid tax bill continue to accrue while you’re on an IRS payment plan, but the late-payment penalty drops to 0.25% per month.

There is a short-term plan for those who owe less than $100,000 and can pay the balance within 180 days. There is also a long-term plan for those who owe less than $50,000 but need more than 180 days to pay their balance. It’s free to set-up the short-term plan but the long-term plan comes with a set-up fee ($22 if you enroll in direct debts or $69 if you don’t).

Credit Cards

If your tax debt is relatively small and you have room on your credit card, paying the IRS with plastic can be a quick fix. However, this option should be approached with caution.

While the IRS allows tax payments via credit card, it does so through third-party payment processors that charge a convenience fee of around 1.75%. And if you can’t pay the credit card balance off immediately, you’ll be stuck paying high interest rates that can add up quickly.

One exception: If you can qualify for a credit card that offers a 0% introductory rate, using a credit card could be an affordable way to pay your tax bill over time. The key is to pay off your balance before the promotional rate ends (often 15 to 21 months). Otherwise this could be a costly way to get a loan to pay your taxes.

Loved Ones

Borrowing from family or close friends might be a viable option if you’re short on cash and want to avoid high-interest loans. This type of informal loan can offer flexibility in repayment terms, and often, little or no interest. It also doesn’t require a credit check, which can make it an appealing choice for people who may have a limited or poor credit.

However, mixing money with personal relationships can be tricky. If you don’t make agreed-upon payments on time or run into trouble repaying the loan, it could strain or damage relationships.

If you do decide to go this route, it’s important to be clear about expectations from the beginning. You might even want to draw up a simple agreement to outline expectations.

Payday Loans

Payday loans are short-term, high-interest loans intended to cover urgent financial needs until your next paycheck. They are typically easy to get and require little credit history, making them seem attractive for those looking for fast cash who might not qualify for other borrowing options.

However, payday loans come at a steep cost. According to the Consumer Financial Protection Bureau, fees often run around $15 for every $100 borrowed, which equates to an annual percentage rate (APR) of nearly 400%. Repayment periods are also typically short, generally two to four weeks.

Many borrowers fall into a cycle of renewing loans or taking new ones to pay off the previous ones, leading to a dangerous spiral of debt. These should only be considered as an absolute last resort.

Home Equity Loan or Line of Credit

A home equity loan and a home equity line of credit (HELOC) are both ways to borrow money using the equity in your home as collateral. A home equity loan provides a lump sum of money with a fixed interest rate, while a HELOC functions like a credit card, allowing you to borrow, repay, and borrow again against a set credit limit, often with a variable interest rate.

Home equity financing typically comes with lower interest rates than unsecured loans. But if you default on your loan or line of credit, you could potentially lose your home. This type of funding can also take some time to get, as the underwriting process typically requires multiple steps (including a home appraisal).

Personal Loans

A personal loan can be a practical solution for paying off taxes. There are different types of personal loans but typically these loans are unsecured, meaning you don’t need to put up any type of collateral. You borrow a fixed amount and repay it in equal installments over a predetermined term, typically one to seven years.

Interest rates vary widely depending on your credit score, income, and the lender’s policies. For borrowers with excellent credit, rates can be relatively low. However, those with fair or poor credit may face higher rates and fewer options.

Recommended: Personal Loan Calculator

Pros and Cons of Using a Personal Loan to Pay Taxes

Taking out a personal loan to pay taxes can be a smart financial move in some cases, but it’s not for everyone. Here’s a breakdown of the advantages and drawbacks.

Pros

•   Fixed repayment terms: Personal loans come with fixed monthly payments, which can make budgeting easier and help you plan your finances. Term lengths also tend to be longer than what you could get with an IRS payment plan.

•   Lower interest rates (with good credit): For borrowers with strong credit, personal loans typically offer lower rates than credit cards.

•   Quick funding: Many lenders can approve and fund a personal loan within a week; some even faster. That can be helpful if your tax payment deadline is looming.

•   Avoid IRS Penalties: Using a loan to pay your taxes on time can help you avoid late payment penalties and compounding interest from the IRS.

•   Credit Building: Successfully managing and repaying a personal loan can have a positive impact on your credit profile.

Recommended: Paying Tax on Personal Loans

Cons

•   Interest costs: Depending on your credit, personal loans can carry high interest rates that add significantly to your overall repayment amount.

•   Fees: Some personal loans come with origination fees, prepayment penalties, or late fees, which can increase the total cost of borrowing.

•   Could negatively impact credit: Taking out the loan will trigger a hard credit inquiry which can cause a small, temporary drop in your credit scores. Any late or missed payments could have a more damaging effect on your credit profile.

•   Increases your DTI: Since a personal loan adds another monthly debt payment, it directly increases your debt-to-income ratio (DTI) (a metric that compares your monthly debt payments to your gross monthly income). This could make it harder to qualify for other types of financing, such as a mortgage or car loan, in the future.

•   Not a long-term fix: A personal loan is a temporary solution. If your tax issue stems from deeper financial problems, it’s important to address the root cause.

The Takeaway

If you can’t pay your full tax liability by the deadline, it may be possible to get a loan, such as a personal loan or home equity loan, to cover the shortfall. This can help you avoid owing penalties and interest to the IRS, but it’s important to keep in mind that loans generally come with their own costs.

Before you borrow, you’ll want to carefully evaluate your financial situation, shop around for the best loan terms, and compare the total cost of borrowing against using an IRS payment plan. Understanding your options and choosing wisely can help you stay out of trouble with the IRS and protect your long-term financial health.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can I get a loan to pay taxes?

Yes, you can potentially get a loan to pay your taxes. One option is to apply for a personal loan from a bank, credit union, or online lender, and use it to cover your tax debt. If you own a home and have sufficient equity, another option is to take out a home equity loan or line of credit and use the funds to pay your taxes. A 401(k) loan or a credit card (ideally with a low a 0% promotional rate) are other potential options.

Before you borrow money to pay your taxes, however, it’s a good idea to explore an IRS payment plan. While the agency continues to charge interest and penalties on your unpaid balance, the cost could be lower than some borrowing options.

What is a tax loan?

A tax loan is any form of financing used to pay off a tax debt. For example, you can use a personal loan as a tax loan. This type of financing offers a lump sum you can use to pay the IRS or your local tax authority immediately. This helps avoid penalties, interest charges, or tax liens. However, tax loans also come with costs, so it’s important to weigh your options carefully.

How does a tax loan work?

A tax loan often works like a standard personal loan. You apply through a lender (such as a bank, credit union, or online lender) and if approved, you receive a lump sum, which you use to pay your tax bill. You then repay the loan in fixed monthly installments over a set period with interest.

A tax loan can be helpful if you don’t have enough cash to cover your tax bill, but it’s important to consider their potential costs and risks to determine if it’s the best approach for your situation.

Is using a personal loan for taxes better than using a credit card?

Using a personal loan for taxes can be better than using a credit card, depending on the terms. Personal loans often have lower interest rates than credit cards, especially for borrowers with good credit. They also offer fixed repayment terms, which can make budgeting easier. However, if you can qualify for a credit card with a 0% introductory rate and can pay off the balance before the rate goes up, that option might be more cost-effective.

What credit score do you need for a tax loan?

If you’re thinking of getting a personal loan to pay your tax bill, lenders generally prefer borrowers with good or excellent credit scores (mid 600s and above), though requirements vary. Borrowers with higher scores are more likely to qualify for better interest rates and loan terms. If your credit score is lower, you may still qualify through subprime lenders, but you’ll likely face higher rates. Many lenders also consider other factors — such as income, employment history, and debt-to-income ratio — when evaluating your application, not just your credit score.

Can I use a personal loan to pay property taxes?

Yes, you can use a personal loan to pay property taxes. This option can be useful if you’re facing a large, unexpected bill or trying to avoid late fees or a tax lien. A personal loan provides quick funding and fixed monthly payments, allowing you to spread the cost over time. Before going this route, however, it’s a good idea to compare interest rates and loan terms to other options, such as payment plans from your local tax authority.

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SOPL-Q325-012

How much does the average American have in savings? Age tends to have a lot to do with it. Generally, as people get older, they are likely to have more savings.

But what the average person has in a savings account also depends on their financial goals and personal circumstances.

If you’re looking for a benchmark of just how much you should save by a specific age, or how much you should start contributing right now, read on for average savings by age and some tips that could help.

The Importance of Saving for the Future

Life can happen fast. For example, the average cost of having a new baby is almost $19,000, including approximately $3,000 in out-of-pocket expenses for pregnancy and delivery. And then there’s the cost of caring for a child, which some estimates put at more than $310,605 for raising them through age 17.

And, if that baby wants to get a college degree, you’re looking at a whole new realm of savings. The cost of a four-year public college education can range from about $108,584 to $182,832, according to the Education Data Initiative.

There’s one other big reason to save for the future: People are living longer. According to a 2025 survey by the Employee Benefit Research Institute, only 28% of American workers are “very confident they will be able to retire comfortably.” Thirty-two percent of workers say their lack of confidence is because they have less than $25,000 in savings and investments.

Fortunately, the concept of saving for the future seems to be resonating with people at younger ages. According to the SoFi 2024 Retirement Survey, more than half (51%) of respondents started saving for retirement before age 35, with many of that group starting by age 25.

Source: SoFi 2024 Retirement Survey

A Savings Shortfall

Still, Americans’ savings strategy has a way to go. More than half of Americans can’t cover an unexpected $1,000 expense, according to Bankrate’s 2025 emergency savings report. Only 41% say they could cover it.

And 37% of all Americans don’t have enough cash in savings to cover even a $400 emergency, the Federal Reserve found in its “Economic Well-Being of U.S. Households in 2024” report.

Average Savings by Age in the USA

The Federal Reserve’s latest (2022) Survey of Consumer Finances shows that the typical American household has an average savings balance of $62,410.

But average savings varies greatly by age and number of people in a household. Here’s what savings by age looks like.

Average Savings for Those 35 and Younger

Americans under the age of 35 had an average savings account balance of $20,540, according to the Fed’s survey.

This is a large age bracket that can range from those just graduating high school to recent college grads to young professionals well into a decade’s worth of work.

It’s wise to have three to six months of expenses in an emergency fund. At the very least, aiming to have $1,000 handy in a savings account for unexpected expenses is recommended.

Use our emergency fund calculator to see how much you should ideally have stashed away.

For those who have started their careers, employer-sponsored retirement funds such as a 401(k) plan can be good options to start saving for long-term retirement goals.

It makes sense to contribute at least enough to get matching funds from an employer, if that’s an option with your company’s plan. For reference, the average 401(k) savings for those ages 25 to 34 is $42,640, according to Vanguard’s “How America Saves 2025” report.

Recommended: Why You Should Start Retirement Planning in Your 20s

Average Savings by Age: 35 to 44

Americans ages 35 to 44 had an average savings account balance of $41,540, according to the Federal Reserve survey. Those in this age bracket are now well into adulthood. At this stage of life, it’s prudent to have that three-to six-months’ worth of savings in an emergency fund, to cover the cost of everything from an accident to a lost job.

This may also be the time to think about diversifying a financial portfolio and possibly investing in the stock or bond market.

And, of course, keep contributing to your 401(k). For reference, the average 401(k) savings for those ages 35 to 44 is $103,552, according to the Vanguard report.

Average Savings by Age: 45 to 54

People ages 45 to 54 had an average savings account balance of $71,130, according to the Fed’s survey.

At this point, general financial advice dictates that a 50-year-old should have at least six times their annual salary if their intention is to retire at 67.

Those in this age group have an average 401(k) savings of $188,643.

Average Savings by Age: 55 to 64

The Fed survey found that Americans ages 55 to 64 had an average savings account balance of $72,520.

Since this is the time when most Americans are staring down retirement in a few years, it’s generally a good idea to boost retirement savings into high gear.

That’s because while younger people in 2025 are capped at contributing $23,500 a year to a 401(k) account, those ages 50 and up are allowed to contribute an additional $7,500.This is known as a catch-up contribution. Also for 2025, those aged 60 to 63 may contribute an additional $11,250 to a 401(k) instead of $7,500, thanks to SECURE 2.0.

The average retirement savings account for a person aged 55 to 64 is $271,230. It’s important to note that taking a withdrawal from such a plan before the age of 59 ½ could mean paying taxes and penalties.

Average Savings by Age: 65 and Older

This is when savings really peaks for the average American. The latest Federal Reserve Survey of Consumer Finances found that Americans ages 65 to 74 had an average savings account balance of $100,250.

However, that savings number does drop over time. According to the survey, Americans ages 75 and up had an average savings account balance of $82,800.

This underscores the importance of creating a retirement budget and sticking to it in order to have enough savings for as long as needed.

But before retirement, try to hit the average retirement savings amount for those ages 65 and up, which is $299,442.

This chart offers an at-a-glance comparison of the average American savings by age.

Median Savings by Age

Median savings is different from average savings. The median is the number in the middle of all the other numbers, meaning half the numbers are higher and half are lower. So with median savings, half the people in an age category will have saved more and half will have saved less.

These are the median savings by age, according to the latest Federal Reserve Survey of Consumer Finances:

•   Under 35: $5,400

•   35-44: $7,500

•   45-54: $8,700

•   55-64: $8,000

•   65-74: $13,400

Savings vs Retirement Savings

What Americans have saved for emergencies, expenses, and other near-future goals is different from what they have in their retirement savings accounts, as you can see from all the information above. It’s critical to have both types of savings at the same time.

And keep this in mind: As you get older, and closer to retirement, it’s important that your retirement savings grow even more. It’s a good idea to contribute the maximum amount allowed to your retirement accounts at this time, if you can. This is one of the ways to save for retirement.

Saving a Little Bit More

Reaching specific savings goals doesn’t have to be complicated. It just means doing a bit of homework, strategizing, and staying diligent about personal finances.

The first step in saving more is to analyze current expenses to see what can be cut back on or cut out altogether to make more room for saving. This means creating a personal budget and tracking current spending.

To track spending, a person could create an excel spreadsheet and list all expenditures by categories like groceries, phone bill, car expenses, housing, medical, entertainment and others over the course of a month, filling it in with every single dollar spent to see where the money is going. Or you can use an online tracker like SoFi’s tracker, which allows users to connect all their accounts to one dashboard and track spending habits in real time.

After the month is up, the next step is to look back on the expenditures list. Was there anything that surprised you? Do you need all those streaming subscriptions? How about that gym membership — did it actually get used? This is the time to get a little ruthless.

After figuring out what’s left, try implementing a general budget outline like the 50/30/20 rule. This means that approximately 50% of your after-tax income goes toward essential expenses like food and rent, while 30% goes toward discretionary expenses like nights out at the movies or concerts. The last 20% belongs to savings and retirement account goals.

Next, it’s time to get creative about saving even more for the future. This can be done by putting more cash into a high-yield savings account via direct deposit right from a paycheck.

Those looking to save a few more bucks every month could also do so by getting rid of unnecessary expenses. But, instead of pocketing that cash, consider using mobile banking to direct that cash right to savings.

Still feeling the pinch and don’t really have room to save more from a budget? Working part-time for, say, a ride-sharing company could allow you to set your own hours and earn extra income based on how much time you can dedicate to it. Other options might include freelance work in photography, writing, or other creative arts.

The Takeaway

Saving for goals in the near term — such as a house or a car — along with putting away money for an emergency savings fund to cover unexpected expenses, is important at every age. And so is investing in your future, including for retirement. The earlier you start saving for all your goals, the better.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How much should a 30 year old have in savings?

By age 30, you should have the equivalent of your annual salary saved. So if you make $60,000 a year, you should have $60,000 in savings.

How much money does an average person have in savings?

The average American has a savings balance of $62,410, according to the 2022 Federal Reserve Survey of Consumer Finances, which is the latest data available.

How many Americans have $100,000 in savings?

According to one 2023 survey, only 14% of Americans have at least $100,000 in savings.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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SOBNK-Q325-095

As you explore your home loan options, you may wonder, “Is property tax included in mortgage payments?” Typically it is, often along with insurance. Though many mortgage calculators don’t include property tax in their estimates, it is likely that expense will be rolled into your mortgage payment.

Having your property tax included in your mortgage is convenient, but it’s not the only way to pay taxes. Read on to learn more about paying property taxes and your mortgage.

What Are Property Taxes?

Property taxes are taxes paid on real property owned by an individual or entity. Property taxes are based on an assessed property value and are paid whether or not the property is used. When you become a new homeowner, you’ll pay property taxes for the first time.

The money you pay will be put to use toward the local school system, police and fire departments, sanitation, road work, and other services.


💡 Quick Tip: SoFi’s mortgage loan experience means a simple application — we even offer an on-time close guarantee. We’ve made $9.4+ billion in home loans, so we know what makes homebuyers happy.‡

Why Do You Need to Pay Property Taxes?

Local governments rely on property taxes as a revenue source. About 75% of local funding from tax collections come from property taxes.

As noted above, property taxes pay for government services like schools, roads, law enforcement, and emergency services. If you have a mortgage, a portion of your payment will generally go into your escrow account to be paid when your taxes come due.

How Are Property Taxes Paid?

Every month you’ll pay one-twelfth of your tax payment into an escrow account, if you have one, and most loans do.

When it’s time to pay taxes, a notice will be sent to your mortgage servicer. You’ll likely see one in the mail, too, but your mortgage servicer is the one responsible for paying your property taxes. (A review of your mortgage statements should reflect that you are paying these taxes.)

When are property taxes included in mortgages? Usually, but if you make a down payment of 20% or more on a conventional loan, your lender may waive the escrow requirement if you request it. USDA and FHA mortgages do not allow borrowers to close their escrow accounts. If you own your home outright, you’ll pay taxes on your own.

How to Calculate Property Tax

Property tax is calculated by your local taxing entity. The methods and rates for calculating property taxes vary widely around the country. In general, your property is assessed and you pay taxes as a percentage of that value. (Keep in mind that the assessed value may be different from the market value.)

To get the amount of taxes you will pay, multiply the assessed value of your home by the tax rate. Some states allow for an exemption to reduce the taxable value. Florida, for example, offers a homestead exemption of up to $50,000 on a primary residence.

If your home was assessed at $400,000, and the property tax rate is 0.62%, you would pay $2,480 in property taxes ($400,000 x 0.0062 = $2,480).

If you qualify for a $50,000 exemption, you would subtract that from the assessed value, then multiply the new amount by the property tax rate.

$400,000 – $50,000 = $350,000
$350,000 x 0.0062 = $2,170

With an exemption of $50,000, you would owe $2,170 in property taxes on a $400,000 house.

Property Tax Rate

The property tax rate is determined by the local taxing authority and is adjusted each year. In general, taxing entities aim to collect a similar amount as in the prior year. If property values go up, the effective tax rate might go down a little. You will receive a notice in the mail informing you of the new rate.

Factors That Can Affect Property Tax Rates

Local government bodies set property tax rates in their areas, depending in large part upon their funding needs. If you live in a city or county that invests heavily in its educational system, you might pay a higher rate than you would in an area that doesn’t prioritize excellent schools, for example. What’s more, some states have higher income taxes or other taxes that may be used to help fund local services, in which case the property taxes may be lower.

What you will pay is also affected by the assessed value of your property (which is not necessarily the same as your home’s market value).

Does a Mortgage Include Property Tax?

Property taxes will be listed on your mortgage statements if you have an escrow account for homeowners insurance and property taxes. (When you’re shopping for a home loan, whether you’ll need an escrow account is one of many mortgage questions to ask a lender.)

The mortgage servicer deposits the portion of your mortgage payment meant for taxes in the escrow account. When your tax bill is due, the servicer will pay it.

Understanding Escrow Accounts

In general, an escrow account is an account in which a third party holds funds to fulfill a contract when certain conditions are met. In the context of your mortgage, what this means is that many lenders set up an escrow account out of which they pay your homeowners insurance and property tax bills. They do this to make sure these bills get paid and protect their investment. There are strict rules about how much they can collect (typically 1/12 the cost of your yearly insurance and tax bill, if you are up to date on your payments) and how the escrow account is administered.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

What Happens to Property Tax If You Pay Off Your Mortgage?

If you pay off your mortgage, your property tax stays the same. The difference is that you no longer have a mortgage servicer administering the escrow account for you. If you do have money left in your escrow account, it will be refunded to you once the mortgage is paid off.

Now that you no longer have an escrow account, you need to contact the taxing entity and have the tax bill sent directly to you to pay.

Recommended: How to Afford a Down Payment on Your First Home

What if You Can’t Afford Property Tax?

If you’ve paid off your house or have closed your escrow account, you may feel the full force of ever-increasing property taxes. This is particularly true for older adults on a fixed income.

The trouble with not paying your property taxes is that your taxing entity can place a lien against your property or even start foreclosure proceedings. You do have several options to explore if you’re having trouble with your property taxes.

•   Payment options. Your locality may be open to establishing a payment system for collecting your taxes. There are also relief programs you may be eligible for.

•   Challenge your home’s assessed value. Since your taxes are based on your home’s assessed value, you can challenge it to potentially reduce your taxes. You generally need to do this soon after you receive your tax bill. You have to show that the assessed value of your home is inaccurate or unfair.

•   Talk to a HUD housing counselor. A housing counselor can point you in the direction of programs that can reduce your tax bill or offer some other relief, such as a deferral or payment plan. They can also help you find mortgage relief programs, should you need them.

The Takeaway

Are property taxes included in a mortgage? With most home loans, yes. Typically, you pay one-twelfth of the amount owed every month into escrow, and your servicer is then responsible for paying the property tax bill for you. Property taxes are a significant part of your home-buying budget, so be sure to include them in your budget as you work towards securing a mortgage.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What is included in my monthly mortgage payment?

What exactly is included in your monthly mortgage payment can vary, but typically it includes principal, interest, property taxes, homeowners insurance, and any mortgage insurance.

Is it better to pay your monthly tax with your mortgage?

It’s certainly more convenient to have your tax included in your mortgage payment. For the duration of your mortgage you won’t have to worry about your taxes being paid or coming up with a large payment when they come due. On the other hand, if you would rather manage the tax payment yourself, you may be able to cancel your escrow account and pay the taxes on your own.

How do I know if my property taxes are included in my mortgage?

You can check your monthly mortgage statement or closing documents if you’re a new homeowner. For most types of loans, taxes are included in your mortgage payment.

Do you pay property tax monthly?

The monthly mortgage payment you send usually includes a share of the annual property tax bill that your mortgage servicer will pay. If you pay your taxes directly, you’ll pay them annually or semiannually.

What happens if you miss a property tax payment?

If you miss a property tax payment to your tax authority, there will be a lien on your property, making it more difficult to sell. Ultimately, if the situation is not resolved, you could lose your home, though that may take as long as one to three years.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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