Are property taxes included in the mortgage?

Oh, property taxes! When someone buys a house, they’re not only thinking about having a cool place to live, but they’re also getting a special surprise. Every year, they have to pay some money to their town or city for having that awesome house. 

This money is called property taxes. 

It’s kind of like a yearly birthday party for your house, but instead of getting gifts, you give money to help make your neighborhood even better. 

Now, let’s talk more about property taxes and find out if they are included in the mortgage!

In this article, we will explore how property taxes and mortgage payments are related and clarify whether or not property taxes are included in your monthly mortgage payment.

property tax exemption page

Property taxes are not directly included in the mortgage itself, but they are often included in the monthly mortgage payment through an escrow account set up by the lender. 

When property taxes are part of the mortgage payment, the lender collects a portion of the estimated annual property taxes each month and deposits it into the escrow account. 

The lender then pays the property taxes on the homeowner’s behalf using the funds accumulated in the escrow account when they are due.

Including property taxes in the monthly mortgage payment helps homeowners budget more effectively, as it spreads the cost of property taxes throughout the year. 

It also ensures that property taxes are paid on time, which is crucial for avoiding late fees, penalties, or more severe consequences like tax liens.

However, not all mortgages include property taxes as part of the monthly payment. 

Sometimes, homeowners may be responsible for paying property taxes directly to the local taxing authority.


What does the monthly mortgage payment include?

A monthly mortgage payment typically consists of four main components, commonly called PITI. These components are:

Principal: This is the portion of your payment that goes towards reducing the outstanding balance of your loan. As you make principal payments, you gradually build equity in your property.

Interest: This is the cost of borrowing money from your lender. Interest is calculated based on the outstanding loan balance and the interest rate agreed upon in the mortgage contract.

Taxes: Property taxes are assessed by local governments to fund various public services, such as schools, infrastructure, and public safety. These taxes are usually based on the estimated value of your property and can vary depending on the location.

Insurance: Homeowners’ insurance protects your property against damages and losses due to events such as fire, theft, and natural disasters. Additionally, if your down payment is less than 20% of the home’s purchase price, your lender may require you to pay for private mortgage insurance (PMI). This insurance protects the lender in case you default on the loan.

In many cases, property taxes and insurance premiums are included in the monthly mortgage payment, and the lender manages these funds through an escrow account. 

However, this arrangement may vary depending on your mortgage terms and lender policies. 

Are property taxes paid on a monthly basis?

Property taxes are generally not paid on a monthly basis, but rather they are typically billed and paid either annually, semi-annually, or quarterly, depending on the local government’s policy in your area.

However, when you have a mortgage, your lender may include property taxes as part of your monthly mortgage payment by dividing the annual property tax bill into equal monthly amounts.

In such cases, the lender collects these monthly property tax installments and holds them in an escrow account.

Then, when the property taxes are due, the lender pays them on your behalf using the funds accumulated in the escrow account.

This arrangement helps ensure that property taxes are paid on time and allows homeowners to spread the cost of property taxes throughout the year, making it more manageable.

Remember to check with your local tax assessor’s office and lender to understand the specific payment schedule and process for your property taxes.

What is mortgage escrow?

Mortgage escrow is a financial arrangement between a homeowner and their mortgage lender. The lender sets up a separate account to collect and manage funds for property taxes and homeowners insurance on behalf of the homeowner.

The primary purpose of a mortgage escrow account is to ensure that these essential expenses are paid on time and in full, reducing the risk of tax liens or lapses in insurance coverage.

With a mortgage escrow, the lender calculates the annual property tax and insurance premium amounts and divides the total by 12 to determine a monthly escrow payment.

This payment is added to the homeowner’s monthly mortgage payment (principal and interest). The lender then deposits the escrow portion into the escrow account each month.

When property tax and insurance bills are due, the lender uses the funds in the escrow account to pay directly to the local taxing authority and the insurance provider.

This arrangement simplifies the budgeting process for the homeowner and ensures that these essential expenses are managed efficiently.

Some lenders may allow homeowners to manage property tax and insurance payments independently. However, in cases where the homeowner has a smaller down payment or a higher loan-to-value ratio, the lender may require an escrow account as a condition of the mortgage.

Is it a good idea to have an escrow account?

An escrow account can be a beneficial financial tool for homeowners, but whether it’s a good idea depends on your circumstances and preferences. Here are some advantages and disadvantages to consider:


Budgeting: An escrow account simplifies budgeting by combining property tax and insurance payments with your monthly mortgage payment. This arrangement makes it easier to manage your housing expenses and ensures that these important bills are paid on time.

Timely payments: With an escrow account, your lender makes property tax and insurance payments on your behalf, ensuring they are paid on time and avoid penalties or lapses in coverage.

No large lump-sum payments: An escrow account spreads the cost of property taxes and insurance premiums over the year, eliminating the need for large lump-sum payments, which can be challenging for some homeowners to manage.


Loss of control: With an escrow account, you’re entrusting your lender to make timely payments for your property taxes and insurance. You may face penalties or other issues if your lender mismanages the account or fails to make payments.

Limited investment opportunity: The funds held in an escrow account typically do not earn interest or provide any investment opportunities. If you’re confident in your ability to save and manage funds, consider setting aside money for property taxes and insurance and potentially earning interest on those funds.

Changes in escrow payments: If your property taxes or insurance premiums increase, your lender will adjust your monthly escrow payment accordingly. This can lead to fluctuations in your monthly housing expenses, which may be challenging for some homeowners.

How are property taxes paid without escrow?

If you choose not to have an escrow account or if your lender doesn’t require one, you will be responsible for paying property taxes directly to your local taxing authority. 

By handling property taxes without an escrow account, you assume the responsibility of budgeting, saving, and making timely payments. 

When does escrow pay property taxes?

When you have an escrow account for your mortgage, your lender is responsible for paying your property taxes on your behalf using the funds accumulated in the escrow account. The timing of these payments depends on the payment schedule set by your local taxing authority. Property taxes are generally billed and paid either annually, semi-annually, or quarterly.

Your lender will keep track of the due dates for your property taxes and make the payments according to the schedule. Then, they will disburse the funds from your escrow account directly to the local taxing authority, ensuring that your property taxes are paid on time and in full.

Monitor your escrow account statements and communicate with your lender to confirm that they are making the property tax payments as required. This can help you avoid any issues related to unpaid property taxes or penalties due to late payments.

What happens if property taxes aren’t paid?

If property taxes are not paid on time, several consequences can arise, creating financial and legal difficulties for the property owner. Here are some expected outcomes of not paying property taxes:

Late fees and interest: When property taxes are not paid by the due date, the local taxing authority may impose late fees or penalties. Additionally, interest may accrue on the outstanding balance, which can increase the overall amount owed.

Tax liens: If property taxes remain unpaid for an extended period, the local government may place a tax lien on the property. A tax lien is a legal claim on the property, making it difficult to sell or refinance the property until the outstanding taxes, penalties, and interest are paid in full.

Tax sale or auction: In some cases, if property taxes continue to go unpaid, the local government may initiate a tax sale or auction to recover the delinquent taxes. Depending on the jurisdiction, this process could involve selling the tax lien to an investor or selling the property itself. In either scenario, the property owner risks losing their property or paying additional costs to redeem it.

Foreclosure: If a tax lien remains unpaid, the lienholder (either the local government or an investor who purchased the lien) may eventually initiate a foreclosure process to take possession of the property. Foreclosure can result in the property owner losing their home, as well as negatively impacting their credit score.

To avoid these consequences, staying current with property tax payments and communicating with your local taxing authority if you are experiencing financial difficulties is crucial. 

In some cases, you can negotiate a payment plan or explore tax relief programs available to eligible homeowners.

Are property taxes included in the mortgage?

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