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Expect to pay 2% to 5% or even 6% of the new mortgage amount in closing costs when you refinance your mortgage.

If you have sufficient equity in your home and you’re tempted by a rate-and-term refinance or a cash-out refi, here’s what you need to know about the costs.

What Is the Average Cost to Refinance a Mortgage?

How much does it cost to refinance a mortgage? Let’s put it this way: Refinancing isn’t free. That’s because you’re taking out a new home loan and paying off your current one, and doing so brings on a host of costs, though not as many as purchase loans incur.

The main difference between the average cost to refinance vs. closing costs for home purchases is that owner’s title insurance and several inspection fees common for purchases are not necessarily required for refinances or may be cheaper. But there is evidence that fees have been creeping up in recent years. From 2021 to 2023, median total loan costs for home mortgages increased by over 36%, according to the government’s Consumer Financial Protection Bureau.

Common Mortgage Refinance Fees

Some fees to refinance are flat fees that vary by lender. Other fees are based on a percentage of the loan amount.

Then there are recurring closing costs like homeowners insurance and property taxes. Six months of property taxes are often due at closing.

Here are some common fixed closing costs, though in some cases, a borrower may not need an appraisal.

And here are common percentage-based closing costs. Keep in mind that not all borrowers will need mortgage insurance (PMI or MIP: private mortgage insurance for conventional loans, and mortgage insurance premium for FHA loans). PMI is usually needed for a conventional loan exceeding an 80% loan-to-value ratio.

An FHA loan can be refinanced to another FHA loan or to a conventional loan if the borrower meets credit score and debt-to-income requirements for a nongovernment loan. USDA and VA loans can also be refinanced.

Hidden Costs to Watch For

Being aware of the range of potential closing costs and fees for a refinance is important as you’re evaluating whether a refinance would make financial sense for you. But there are some potential fees that might blindside you. Here are a few to look out for.

•   Prepayment penalties. If your original mortgage penalizes you for an early payoff, your refinance might trigger those fees. How these penalties work varies by lender, so it’s worth checking with yours to make sure you know what, if any, fees you might be facing if you refinance.

•   VA funding fee. If you’re refinancing using a VA loan, you’ll need to pay an upfront funding fee. The fee is a percentage of the amount you’re borrowing and may be higher for refinances, depending on the down payment. Current rates range from 1.25% to 3.3% of the loan amount.

•   USDA guarantee fee. If you’re refinancing to a USDA loan, expect to pay a new guarantee fee, currently 1% of your loan amount, as well as a recurring annual fee of 0.35% of the loan amount.

Are You Eligible to Refinance?

Most mortgage lenders want a homeowner to have at least 20% equity in the house in order to refinance, although those numbers are not universal.

What is home equity? Here’s an example. If your home is worth $450,000 and the current mortgage balance is $250,000, you have $200,000 in equity. The loan-to-value ratio is 56% ($250,000 / $450,000). This scenario fits the parameters of many lenders for a refinance to take place.

Credit Score and Debt-to-Income Ratio Requirements

You’ll typically need a minimum FICO® credit score of 620 to refinance a conventional loan and 580 to refinance an FHA loan. A score of 740 or above often ushers in the best rates.

Lenders will also look at your debt-to-income (DTI) ratio, which compares your monthly debt to your monthly income. What they’ll accept depends on the lender, but for a refinance, they may prefer as low as 35% or less, though some may be willing to accept higher if your other credentials are good.

Besides credit score and DTI ratios, lenders normally review recent credit applications, on-time payments, and credit utilization.

Recommended: 7 Signs It’s Time for a Mortgage Refinance

Benefits of Refinancing a Mortgage

The most common type of refi is a rate-and-term refinance, when you take out a new loan with a new interest rate or loan term (or both). Some people will choose a mortgage term of less than 30 years when they refi, if they can manage the new monthly payment.

Then there’s cash-out refinancing, which provides a lump sum to the homeowner.

In general, refinancing may make sense if interest rates fall below your current mortgage rate. Here are some times when a mortgage refinance could be beneficial.

If You Can Break Even Within a Suitable Time Frame

Calculate how long it would take to recoup the closing costs. Find the break-even point by dividing the closing costs by the monthly savings from your new payment.

Let’s say refinancing causes your payment to decrease by $100 a month. If closing costs will be $2,500, it would take 25 months to recoup the costs and start to see savings.

If you plan to sell the house in two years, refinancing may not be the right strategy. If you intend to stay long term, it may be an idea to explore.

If You Can Reduce Your Rate Even a Little

You might read or hear that refinancing is worth it if you can reduce your mortgage rate by one or two percentage points. But for a big mortgage, a change of just a quarter of a percentage point, or half of one, could result in significant savings, especially if you can minimize lender fees.

Again, consider the break-even point and how long you plan to keep the home.

You’d Like to Tap Home Equity

With a cash-out refinance, a percentage of your equity can be issued in a lump sum for any purpose. You will need to have at least 20% equity remaining after the transaction.

Be aware that the higher loan amount of a cash-out refinance usually results in higher closing costs.

(If your main goal is to access cash and not to change your rate or term, a home equity loan or home equity line of credit may be less expensive than paying the closing costs on a cash-out refinance.)

An ARM’s Teaser Rate Is Appealing

Refinancing a fixed-rate mortgage to an adjustable-rate mortgage could make sense for a homeowner who plans to move before the ARM’s initial rate adjustment.

A 5/1 ARM, for example, will typically come with a rate for five years that is lower than that of most fixed-rate mortgages.

In other rate environments, it could make sense to refinance an ARM to a fixed-rate mortgage.

You Want to Reduce Your Repayment Term

Some people may decide to take advantage of a lower rate and shorten their mortgage term, say from 30 years to 15. Monthly payments may well go up, but a lower rate and a shorter term mean paying much less over the life of a loan.

The amortization chart of this mortgage calculator shows how much interest may be saved.

You’d Like to Get Rid of FHA Mortgage Insurance

FHA loans come with an annual mortgage insurance premium (MIP) that ranges from 0.15% to 0.75% of the loan amount, divided into monthly payments. Unless you put down more than 10%, you must pay those premiums for the life of the loan. The only way to get rid of the MIP is to get a new mortgage that isn’t backed by the FHA.

You Want to Switch Loan Types

If you have a conventional mortgage but you’re eligible for a government-backed mortgage that may have more advantageous terms, a refinance to switch loan types could be worth exploring.

If you qualify for a VA loan, for example, it may be possible to refinance to a VA loan with a cash-out refinance. You can also potentially refinance from a conventional mortgage to an FHA cash-out refinance or FHA 203(k) refinance (used for home improvements), though you will have to pay the mortgage insurance premium.

Tips to Lower the Cost of a Mortgage Refinance

As you’re contemplating how much it costs to refinance a 30-year mortgage, bear in mind that the most important step you can take is to shop around.

Comparison Shop and Try to Negotiate

You need not apply for a refinance with just your current lender — and doing so would be a missed opportunity, the Consumer Financial Protection Bureau notes. Then again, your current lender may offer loyalty incentives.

Apply with as many lenders as you wish; you’ll receive a loan estimate from each. Compare the costs, including those of the lender’s preferred vendors.

Ask potential lenders which fees can be discounted or waived. Remember, each lender wants your business.

Typical non-negotiable closing costs found under Section B of each loan estimate include credit reports and appraisals.

Keep Your Credit Shipshape

Having at least a “good” credit score can help you get a more attractive rate, and if your credit score has improved since the initial mortgage was taken out, that could be a reason to refinance all by itself.

A good FICO score on the credit rating scale of 300 to 850 falls in the range of 670 to 739. VantageScore®, a competitor developed by Experian, Equifax, and TransUnion, considers a score between 661 and 780 good.

If your credit profile could use some polishing, consider ways to build credit over time.

Use the Same Title Insurance Company

Save money on the lender’s title insurance policy by asking for a reissue rate from the title insurance company that was used for the original loan.

Consider a Streamline Refi for Government Loans

If you have an FHA, USDA, or VA loan, you may want to see if you’re eligible for an FHA Streamline, USDA Streamlined-Assist, or VA Interest Rate Reduction Refinance Loan. The programs may charge a lower mortgage insurance fee than regular government refinance programs and usually do not require an appraisal.

Think About a No-Closing-Cost Refi

A no-closing-cost refinance allows borrowers to roll the closing costs into the mortgage or accept a slightly higher interest rate on the new loan.

Rolling the closing costs into the refinance loan will increase the principal and total interest paid. But if you’re going to keep the loan for more than a few years, this move could be worth it.

Accepting a slightly higher rate could work for borrowers who can skip the upfront payment and who plan to keep their new loan for only a few years.

Lock In a Favorable Interest Rate

When you’ve gotten an offer for an interest rate you like, you may want to get a rate lock, which will ensure the offer won’t change for a specified period of time – usually 30 to 60 days – as long as nothing else changes. Ideally, this will let you be sure you can close the deal with this rate. Some lenders may lock your rate when they issue the loan estimate, but others may not automatically lock your rate and may charge a fee. Check with your potential lender to understand your options.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

How much does it cost to refinance a typical 30-year mortgage? Refinancing your mortgage could cost anywhere from 2% to 5% or more of the loan amount but might make financial sense if you are able to capture a lower interest rate, shorten your payment term (and thus lower the amount of interest you pay), or escape paying a mortgage insurance premium on an FHA loan. To contain costs, always compare offers from multiple lenders and don’t forget to include both interest and closing costs (and fees) in your calculations.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Is refinancing your mortgage free?

No. A whole new loan must be approved and processed, and fees will apply.

Is refinancing a mortgage worth the closing costs?

It might be. You’ll want to calculate your break-even point: Divide your closing costs by whatever your monthly savings will be to find the number of months it will take you to break even. Beyond that point, the refinancing benefits kick in.

Is it worth refinancing to save $100 a month?

Refinancing to save $100 a month could be worth it if you plan to keep your home long enough to cover the closing costs. Divide your closing costs by 100 to calculate how many months it will take you to break even.

Will refinancing cost me more in the long run?

If you get a new 30-year mortgage several years into your original 30-year loan, you are, in essence, lengthening the term of your loan, and that can cost you. It may make more sense to shorten the term to 20 or 15 years.

Is it cheaper to refinance with the same bank?

Your lender might offer a slightly lower rate, but it’s still a good idea to see what competitors are offering by comparing loan estimates.

Can you negotiate closing costs when refinancing?

Yes. Many lender fees and third-party vendor fees are negotiable. On each loan estimate, Section A lists the lender charges. Try to negotiate the lowest total lender charge, keeping the rate in mind. And third-party fees in Section C are negotiable.

*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.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOHL-Q325-026

Are you ruminating about a refi? How soon you can refinance your home depends on the kind of mortgage you have and whether you want cash out.
The type of mortgage you have plays a major role in determining how soon you can refinance a mortgage after closing. You can typically refinance a conventional loan as soon as you want to, but you’ll have to wait six months to apply for a cash-out refinance. The wait to refinance an FHA, VA, or USDA loan ranges from six to 12 months.

Before any mortgage refinance, homeowners will want to ask themselves: What will the monthly and lifetime savings be? What are the closing costs, and how long will it take to recover them? If I’m pulling cash out, is the refinance worth it?

How Soon You Can Refinance Your Home by Mortgage Type

How soon after you buy a house can you refinance? The rules differ by home loan type and whether you’re aiming for a rate-and-term refinance or a cash-out refinance.

A rate-and-term refi will change your current mortgage’s interest rate, repayment term, or both. Cash-out refinancing replaces your current mortgage with a larger home loan, allowing you to take advantage of the equity you’ve built up in your home through your monthly principal payments and appreciation.

Here are more details about how soon after you buy a house you can refinance with different kinds of loans.

How Soon Can You Refinance a Conventional Loan?

If you have a conventional loan, a mortgage that is not insured by the federal government, you may refinance right after a home purchase or a previous refinance — but likely with a different lender.

Many lenders have a six-month “seasoning” period before a borrower can refinance with them. So you’ll probably have to wait if you want to refi with your current lender.

How Soon Can You Cash-Out Refinance?

Here’s how cash-out refinancing works: You apply for a new mortgage that will pay off your existing mortgage and give you a lump sum. A lower interest rate may be available at the same time.

How soon you can refinance your home with a cash-out refinance depends on the kind of loan, but you normally have to wait at least six months before refinancing a conventional mortgage. An FHA cash-out refinance requires that you have owned the home for at least one year and that your mortgage is at least six months old with a record of on-time payments. Getting a cash-out refinance on a VA loan involves a waiting period of 210 days from the closing date on the original mortgage or six months of on-time payments, whichever comes later.

How Soon Can You Refinance an FHA Loan?

An FHA Streamline Refinance reduces the time and documentation associated with a refinance, so you can get a lower rate faster. (That said, how soon you can refinance an FHA mortgage is still not as soon as with a conventional loan.)

You will have to wait 210 days (and make at least six on-time payments) before using a Streamline Refinance to replace your current mortgage.

How Soon Can You Refinance a VA Loan?

When it comes to VA loans, the Department of Veterans Affairs offers an Interest Rate Reduction Refinance Loan (IRRRL), also known as a “streamline” refinance.

It also offers a cash-out refinance for up to a 100% loan-to-value ratio, although lenders may not permit borrowing up to 100% of the home’s value.

How fast you can refinance a home loan from the VA is the same in both cases. The VA requires you to wait 210 days between each refinance or have made six on-time monthly payments, whichever comes later. Some lenders that issue VA loans have their own waiting period of up to 12 months. If so, another lender might let you refinance earlier.

How Soon Can You Refinance a USDA Loan?

The Streamlined-Assist refinance program provides USDA direct and guaranteed home loan borrowers with low or no equity the opportunity to refinance for more affordable payment terms.

Borrowers of USDA loans typically need to have had the loan for at least a year before refinancing. But a refinance of a USDA loan to a conventional loan may happen sooner.

How Soon Can You Refinance a Jumbo Loan?

You may be wondering, “When can I refinance my house if I have a jumbo loan?” For a jumbo loan, even a rate change of 0.50% may result in significant savings and a shorter time to break even.

Here’s the good news about how fast you can refinance a home loan that’s a jumbo loan: You can refinance your jumbo mortgage at any time if you find a lender willing to do so.

Top Reasons People Refinance a Mortgage

If you have sufficient equity in your home, typically at least 20%, you may apply for a refinance of your mortgage. Lenders will also look at your credit score, debt-to-income ratio, and employment.

If you have less than 20% equity but good credit — a minimum FICO® score of 670 — you may be able to refinance, although you may not receive the best rate available or you may be required to pay for mortgage insurance.

Remember, too, that home equity increased for many homeowners in recent years as home values rose. That’s attractive if you want to tap your equity with a cash-out refinance.

Here are some of the main reasons borrowers look to refinance.

Lower Interest Rate

For many homeowners, the point of refinancing is to switch to a loan with a lower rate. Just be sure to calculate your break-even point – the moment when the closing costs will have been recouped: To do this, divide the closing costs by the amount you’ll save in payments every month. For example, if your closing costs will be $5,000 and you’ll save $100 a month, it will take 50 months to break even and begin reaping the benefits of the refi.

Two points to remember if you’re considering a refi for this reason. First, if you purchased your home around 2020, it may be hard to capture a lower interest rate than you currently have, as rates then were particularly low compared to historical mortgage rates. And second: Closing costs can often be rolled into the loan or exchanged for an increased interest rate with a no-closing-cost refinance.

Shorten Loan Term

Refinancing from a 30-year mortgage to a 15-year loan usually saves you a substantial amount of loan interest, as this mortgage calculator shows. Or you might want to refi to a 20-year term, if you’re years into your mortgage already, since resetting to a new 30-year term may not pay off.

Reduce PMI

If you put down less than 20% on a conventional mortgage, you’re probably paying primate mortgage insurance (PMI) on the loan. This typically costs between 0.5% and 1.0% of the total loan amount annually, though it can be higher. When your mortgage balance is down to 78% of the home’s original value (or the loan reaches the halfway point of the term schedule) the lender will automatically cancel the insurance, and you can request to have it removed when the balance is down to 80%, but until then, you’re on the hook for these monthly payments. One potential way to get rid of or reduce them is to refinance. For this to be worth considering, rates will have to be lower and you’ll need to find a lender willing to let you refinance with less than 20% equity. But especially if your home has gone up in value, this may be a possibility.

FHA loans require a similar insurance payment, called mortgage insurance premiums. After the upfront fee you’ll pay at closing, you pay monthly installments on a charge that’s annually between 0.15% and 0.75% of your loan amount for 11 years or the life of your loan, depending on when you took out the loan and the size of your down payment. The only way to get rid of those fees early may be to sell your home or refinance the mortgage to a conventional loan once you have 20% equity in the home — in other words, when your new loan balance would be at least 20% less than your current home value.

Switch to an ARM or Fixed-Rate Loan

Depending on the rate environment and how long you expect to keep the mortgage or home, refinancing a fixed-rate mortgage to an adjustable-rate mortgage (ARM) with a low introductory rate could be a strategic move. Similarly, if you’re uncomfortable with unpredictable payments and want to lock in a stable rate, switching from an ARM to a fixed-rate loan may make sense.

The Takeaway

If you’ve been asking yourself, “When can I refinance my house?” the answer is that it depends. If it’s a conventional loan, whenever you want to, although probably not with the same lender if that’s within six months of closing. Otherwise, if you must bide your time before refinancing or you’re waiting for rates to drop, that gives you a lull to decide whether a traditional refinance or cash-out refi might suit your needs.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Do you need 20% equity to refinance?

Some lenders will allow you to refinance with less than 20% equity in your home, but you may not get the best available interest rate, or you may need to pay for private mortgage insurance. You’ll want to do the math to make sure you’re saving money with the refinance.

Does refinancing hurt your credit score?

There may be a temporary dip in your credit score after a refinance, but if refinancing helps you lower your monthly debts you may find that it is actually helpful to your credit score over the long term.

Should I refinance soon after buying a home?

How soon you can refinance your mortgage after closing is secondary to whether refinancing soon is a good idea. That will depend on your specific loan, how much you put down, whether rates have changed, and many other factors. You’ll also want to take into account both the advantages you hope to get from refinancing as well as the costs.

How do I know when to refinance my mortgage?

The time to think about refinancing your home is when the benefits of a refi outweigh potential costs (like closing costs). If you can get a significantly lower interest rate, switch to a more advantageous loan type, or access a sum you need from a cash-out refinance, for example, it may be worth looking into a refinance.

Can you refinance more than once in a year?

There’s no legal limit on how often you can refinance. However, lenders and loan types may require waiting periods which will limit how many times you can refinance in a year. And don’t forget that you’ll generally need to pay for closing costs each time, as well.

What documents are needed to refinance a mortgage?

Requirements will vary by lender, but typically you’ll need to have documents that establish your income (W-2s for the past two years and paystubs; 1099s and/or tax returns if you’re self-employed), records establishing your financial reserves (account statements, including investment accounts), proof of homeowners insurance, and the most recent monthly statement for any mortgages or home equity loans you have.

*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.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q325-031

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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