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How Property Taxes Impact Your Mortgage Payment

June 6, 2025 by Kay Monigold

When buying a home, most people focus on the home price, interest rate, and monthly payment. But there’s another major factor that can significantly affect your mortgage: property taxes. These taxes can make your mortgage payment higher than expected and understanding how they work is key to managing your budget effectively.

Below, I will break down how property taxes influence your mortgage and what you can do to plan ahead.

What Are Property Taxes?
Property taxes are local taxes assessed on real estate by your city or county government. These funds help pay for public services like schools, police and fire departments, roads, and parks. The amount you owe each year is based on the assessed value of your home and the tax rate in your area.

For example, if your home is valued at $300,000 and your local property tax rate is 1.2%, you will owe $3,600 in property taxes annually.

How Property Taxes Affect Your Mortgage Payment
Most homeowners pay their property taxes through an escrow account set up by their mortgage lender. Here is how it works:

Your lender estimates your annual property tax bill, divides it by 12, and adds that amount to your monthly mortgage payment. The lender collects this money each month and pays the tax bill on your behalf when it comes due.

So, if your base mortgage payment (principal + interest) is $1,500 and your estimated monthly property tax is $300, your total mortgage payment becomes $1,800.

This means your monthly payment can fluctuate, even if your loan amount and interest rate stay the same.

When Property Taxes Go Up
Your local government reassesses property values regularly. If your home’s value increases or the tax rate changes, your property taxes—and your mortgage payment—can go up, too.

Each year, your lender performs an escrow analysis to check if you’ve paid enough to cover your tax and insurance bills. If taxes have increased, you may receive a notice of escrow shortage and a higher monthly payment to make up the difference.

This surprise can catch homeowners off guard, especially if the increase is significant.

Tips to Stay Ahead

  1. Know Your Local Rates:
    Before buying a home, research the area’s property tax rate. A slightly more expensive home in a lower-tax area may have a lower monthly cost than a cheaper home with high taxes.
  2. Watch for Reassessments:
    Stay informed about property assessments in your area. If you think your home’s assessed value is too high, you may be able to appeal the assessment.
  3. Plan for Increases:
    Property values often rise, especially in desirable neighborhoods. Build some cushion into your budget for potential increases in taxes.
  4. Review Your Escrow Statement:
    Lenders send escrow statements each year. Review them carefully and ask your lender if anything looks off.

Understanding how property taxes affect your mortgage helps you plan smarter, avoid surprises, and stay in control of your housing costs. It’s not just about what you borrow, it’s also about what your community collects.

Filed Under: Mortgage Tagged With: Escrow Account, Mortgage Tips, Property Taxes

Why Your Mortgage Has an Escrow Account and How It Works for You

May 15, 2025 by Kay Monigold

When you close on a home loan, you’ll likely hear the term “escrow account” mentioned—and if you’re like most buyers, you may not be entirely sure what it means. While it might sound complicated, an escrow account is a helpful tool that simplifies homeownership and protects your investment.

What is an Escrow Account?
An escrow account is a separate account set up by your mortgage servicer to hold funds for specific home-related expenses, most commonly property taxes and homeowners’ insurance. Rather than paying those large bills all at once, you make monthly contributions as part of your mortgage payment. When the bills come due, your mortgage servicer pays them on your behalf from the escrow account.

Why Do Lenders Require Escrow Accounts?
Lenders want to ensure your property taxes and insurance premiums are paid on time. If those payments aren’t made, your home could be at risk, either from legal claims (like a tax lien) or from damage without insurance coverage. Since your home is the collateral for the mortgage, it’s in the lender’s best interest to protect it.

That’s why many mortgage lenders require escrow accounts, especially for borrowers who make smaller down payments or use government-backed loans. In some cases, if you put down at least 20%, you may be able to opt out—but it depends on your lender’s guidelines.

How Escrow Accounts Affect Your Monthly Payment
Your monthly mortgage payment includes more than just principal and interest—it often includes escrow payments, too. Each year, your lender estimates how much you’ll owe in taxes and insurance, divides that total by 12, and adds that amount to your monthly bill.

Because these costs can change from year to year, your lender will conduct an annual escrow analysis. If taxes or insurance premiums go up, your escrow payment may increase. If they go down, you might receive a refund or a lower payment.

What Happens If There’s a Shortage?
If there isn’t enough money in your escrow account to cover your bills, say, if your property taxes increased unexpectedly, your lender will notify you of a shortage. You’ll typically have the option to pay the difference in a lump sum or spread it out over the coming year.

Escrow Accounts Offer Peace of Mind
Instead of having to remember due dates and save for large annual expenses, your escrow account helps you stay on track. It’s a built-in budgeting tool that simplifies the financial side of homeownership—and ensures your biggest investment stays protected.

Filed Under: Mortgage Tips Tagged With: Escrow Account, Homeownership, Mortgage Tips

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Our Team

Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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