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Are Property Taxes Included in Mortgage?

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Aja McClanahan
Updated March 7, 2023
3 Min Read

Property taxes are included as part of your monthly mortgage payment. With some exceptions, the most likely scenario is that your lender or mortgage servicer will collect a portion of your monthly payment in an escrow account and pay your property taxes from that account when they are due.

What are property taxes?

Property taxes are assessed on real property like land and attached structures such as houses. These taxes are typically controlled and collected by cities and counties. When property owners pay these taxes, the money is used to support local services like schools, police and fire departments and other public services.

In the home buying process, it’s important to understand the impact your property tax will have on your monthly mortgage payment. If you are working with a knowledgeable realtor, they should help you understand what to expect for your yearly property tax expense. Other resources for this information include your lender or the county assessor.

When you get the information about your tax bill, you should also make sure the proper rate applied is specific to your situation. This might include special exemptions for seniors, first-time homebuyers, veterans and active duty military or other designations. If there’s an existing exemption on a property that doesn’t apply to you, your tax bill could be higher than you initially anticipated.

How to check if taxes are included in your mortgage

If you are in the process of buying a home, you can check with your potential lender to find out if your monthly mortgage payment will also include your property taxes. As a homeowner, you can check your monthly mortgage statements, or request an escrow analysis to find out if your monthly payment includes property taxes.

If you put less than 20% down on your conventional loan payment, you are required to place a portion of your monthly mortgage in a special escrow account. When your property taxes are due, your mortgage servicer will send the payment to the local entity that collects property taxes for your jurisdiction.

There are some people that would rather bank their property tax funds and pay them on their own when the bill comes due. Some people like having more control over their property tax payments or earning interest on this money until it’s time to pay the bill. You would have to talk to your lender or mortgage servicer to find out if you have the option to pay your property taxes outside of the escrow account.

How do I calculate my property tax?

Your property taxes are based on the assessed value of your home. This figure is multiplied by the rate your local tax authority sets. If the assessed value of your home is $300,000 and the tax rate is set at 1%, then your annual tax bill would be $3,000.

In this example, you’d be putting aside about $250 in escrow each month to cover your annual property tax liability. Typically paid in two installments each year, your lender or servicer will send the payments off. They have a vested interest in keeping these payments current because they want to protect the asset that collateralizes your mortgage loan: your house.

Note, it’s a good idea to check with your assessor’s office yearly regarding changes to your property tax bill. This is one thing your mortgage lender typically will not do. There are plenty of things you can do to reduce your tax bill such as applying for exemptions or even appealing your assessment. There are legal professionals available to help you with this process as needed.

Another reason to check with your assessor is to stay on top of any proposed property tax increases. Special assessments or referendums can increase your property tax bill. These changes can increase your mortgage payment, which if unexpected, could cause a problem for your monthly budget.

Are property taxes deductible?

If you itemize your deductions, you claim a deduction for the state and local taxes you’ve paid on your property. You can deduct property taxes, plus any taxes paid on the purchase (or sale) of a primary residence, vacation home or land up to $10,000.

Property taxes are part of your home cost

Buying a home comes with added costs you need to consider. In addition to paying principal, interest and insurance in your mortgage payment, you’ll also be covering your property taxes with your monthly mortgage payment. Knowing your total costs of homeownership, including property taxes, can help you choose a property that won’t stretch your finances too thin.

Not only should you understand your property tax rate, but you also need to understand how this number could fluctuate and affect the total amount of your monthly mortgage payments. Fortunately, your mortgage lender or loan servicer does a lot of the work for you so you don’t have to.

Although it’s helpful that they bank and disburse this payment for you, you should still stay on top of any changes to your tax liability or deficits in your escrow account. If possible, set aside extra savings so that you don’t fall behind in mortgage or property tax payments.