How Rising Property Taxes Impact Your Mortgage Payment

Property taxes are one of those things that tend to fly under the radar—until they don’t. If you've noticed your monthly mortgage payment creeping up even though you have a fixed-rate loan, there’s a good chance your property taxes are the culprit.

Recently, my client Victor reached out with concerns about how tax rate increases were affecting his home payment and insurance. He’s not alone—this is something many homeowners experience, especially in areas where property values are rising. So, let’s break it down.

Why Do Property Taxes Increase?

Property taxes are based on the assessed value of your home and the tax rate set by your local government. If home values in your area go up, your property’s assessed value likely will too. On top of that, cities, counties, and school districts can raise tax rates to fund public services, infrastructure, and education.

When your property taxes increase, so does your escrow payment. Since your mortgage servicer collects taxes as part of your monthly payment and then pays them on your behalf, any change in property taxes gets passed on to you in the form of a higher mortgage bill.

How Does This Affect Your Mortgage Payment?

Even if your principal and interest payment stays the same (which it will if you have a fixed-rate loan), your total monthly payment can still rise due to higher escrow requirements. Here’s how it typically plays out:

1. Escrow Shortages: If your taxes increase and your escrow account doesn’t have enough funds to cover them, your lender will adjust your monthly escrow payment to make up the difference. This often results in a higher monthly mortgage payment.

2. Annual Escrow Reviews: Mortgage servicers review escrow accounts annually and adjust payments based on the previous year’s tax and insurance costs. If taxes went up, expect your payment to reflect that.

3. Possible Refunds (But Rarely): If your taxes decrease or your escrow account ends up with a surplus, you might get a refund check—but don’t count on it happening often.

What Can You Do About Rising Property Taxes?

1. Check Your Assessment: If you think your home’s assessed value is too high, you can appeal it with your county. This process varies by location, but if successful, it could lower your tax bill.

2. Look Into Homestead Exemptions: Many states offer exemptions for primary residences, seniors, veterans, and more. If you qualify but haven’t applied, you could be missing out on tax savings.

3. Plan Ahead: Since property values tend to rise over time, it’s smart to budget for potential increases. If your payment is starting to feel tight, let’s talk about options, including loan recasting or refinancing.

The Bottom Line

Property taxes are an unavoidable part of homeownership, but they don’t have to catch you off guard. If you’ve noticed a jump in your payment and want to understand your options, reach out! I’m happy to walk through your numbers and help you find a strategy that keeps your mortgage payment manageable.