Is Property Tax Included in Mortgage?
When you take out a mortgage, it often includes more than just the repayment of the loan's principal and interest. One common component that can be included in your monthly mortgage payment is property tax. Here’s a detailed look at how property taxes are typically handled in mortgage payments:
Basics of Property Tax and Mortgage Payments
1. Escrow Accounts:
- What is an Escrow Account? An escrow account is a separate account that your lender sets up to manage property taxes and insurance payments. Each month, a portion of your mortgage payment goes into this account.How it Works:
- Your lender will calculate your annual property tax bill, divide it by 12, and add that amount to your monthly mortgage payment. When property taxes are due, your lender pays them on your behalf from the escrow account.
2. Benefits of Including Property Tax in Mortgage:
- Convenience: Having your property tax included in your mortgage payment simplifies the process, as you don't have to worry about making large lump-sum payments when taxes are due.
- Avoid Penalties: It ensures timely payment of property taxes, helping you avoid penalties and liens on your property.
3. Disadvantages:
- Higher Monthly Payments: Including property taxes increases your monthly mortgage payment.
- Escrow Adjustments: Your monthly payment might change if your property taxes or insurance premiums change, leading to potential adjustments in your escrow account.
Example Calculation
Let’s look at an example to understand how this works in practice:
Mario’s Property Tax Calculation:
- Assessed Value: $150,000
- Property Tax Rate: 0.6%
- Annual Property Tax: $900 ($150,000 * 0.006)
- Monthly Payment: $75 ($900 / 12)
If Mario’s base mortgage payment is $500, his total monthly payment including property taxes would be $575 (Refinance Or Apply For A Mortgage Online) (SuperMoney).
Alternatives to Including Property Tax in Mortgage Payments
1. Paying Property Tax Directly:
- Responsibility: Homeowners who choose to pay property taxes directly must budget for these expenses and ensure timely payments.
- Discounts: Some jurisdictions offer discounts for early payments.
2. Self-Payment Considerations:
- Budgeting: You need to set aside funds regularly to cover property taxes.
- Risk of Penalties: Missing property tax payments can result in penalties and possible liens.
Choosing the Right Option
Factors to Consider:
- Financial Stability: If you prefer predictable monthly expenses, including property taxes in your mortgage might be beneficial.
- Control: If you prefer managing your own payments and can handle the budgeting, paying directly might be a better choice.
Consulting a Financial Advisor: It’s advisable to consult with a financial advisor to understand which option aligns best with your financial situation and goals.
Conclusion
Including property tax in your mortgage payments can provide convenience and peace of mind, ensuring that your taxes are paid on time. However, it also means higher monthly payments and potential adjustments. Assess your financial situation, consider the pros and cons, and consult with a financial advisor to make the best decision for your circumstances.
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