Property Tax and Your Mortgage: Everything You Need to Know

By Alene Laney · May 18, 2022 · 6 minute read

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Property Tax and Your Mortgage: Everything You Need to Know

If you’re exploring your home loan options, you may wonder: Are property taxes included in mortgage payments? Many mortgage calculators don’t include property tax in their estimate, but it is likely going to be part of your mortgage payment.

Having your property tax included in your mortgage is convenient, for sure, but it’s not the only way to pay taxes.

Won’t rising property values increase property tax liability? Eventually, for many, depending on the schedule of the assessor’s office. In any case, property taxes are a fact of life for homeowners. Let’s look at what they are, why we pay them, how they’re paid, and what happens if you can’t pay them.

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 value of the property 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.

Why Do You Need to Pay Property Taxes?

Local governments rely on property taxes as a revenue source. Over 70% of local tax collections come from property taxes.

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 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.

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 $50,000 homestead exemption 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.

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Are Property Taxes Included in Mortgage Payments?

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.

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 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 to you.

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 of older adults on a fixed income.

The trouble with not paying 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 it soon after you receive your tax bill. You have to show that the market 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

Is property tax included in a mortgage? With most home loans, yes. If you’re ready to take on property taxes, you’re ready to take on a mortgage.

Consider SoFi when you’re shopping for a home loan. SoFi has knowledgeable lending agents and an extensive help center for mortgages.

Additionally, if you qualify for mortgage pre-approval with SoFi, you may become a more competitive buyer in today’s real estate market.

Take a look at SoFi’s fixed-rate home loans and find your rate in minutes.


What is included in my monthly mortgage payment?

There can be as many as seven parts to your mortgage payment: principal, interest, escrow, taxes, homeowners insurance, any mortgage insurance, and any HOA or condo fees.

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. You’ll never 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 contains 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.

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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.

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