What Happens When Your Property Taxes Go Up

When you buy a home with a mortgage, your lender often sets up something called an escrow account. This is a special savings account that your lender controls. Each month, a portion of your mortgage payment goes into this account to cover your property taxes and homeowners insurance. The lender then pays those bills for you when they come due. This system is designed to protect both you and the lender. If you stop paying your taxes, the local government could put a lien on your property, which is a legal claim that could eventually lead to foreclosure. So escrow accounts keep everyone safe.

But here is the part that surprises many homeowners. Your property taxes are not fixed. They can change from year to year. In most places, property taxes go up over time because the value of your home rises, or because your local government raises tax rates to pay for schools, roads, fire departments, and other services. When that happens, your monthly mortgage payment can increase, even if your interest rate stays the same. Understanding why this happens and what you can do about it is important for any homeowner.

Let us say you bought your home three years ago. At that time, your property was valued at two hundred fifty thousand dollars. Your local tax rate was one percent, so your annual tax bill was twenty five hundred dollars. Your lender divided that by twelve and added about two hundred eight dollars to your monthly payment for taxes. Then your escrow account also held a small cushion in case of small changes. That worked fine for two years.

Now, the county reassesses property values. They determine your home is now worth three hundred thousand dollars. Even if the tax rate stays the same at one percent, your new annual tax bill is three thousand dollars. That is an increase of five hundred dollars per year. Your lender sees this change when they get the new tax bill. They then recalculate how much you need to put into escrow each month going forward. The new monthly tax portion becomes two hundred fifty dollars per month, which is forty two dollars more than before.

But there is another piece to this puzzle. Your lender also looks at whether your escrow account has enough money to cover the shortage. Because the tax bill went up, the money you had already set aside in the account may not be enough to pay the full tax bill when it comes due. That creates what lenders call an escrow shortage. To fix that shortage, your lender might ask you to pay the difference in a lump sum, or they might spread it out over the next year by adding even more to your monthly payment. So in our example, if your escrow account was short by two hundred dollars, your lender might add about seventeen dollars per month for the next twelve months. That brings your total increase to around fifty nine dollars per month, not just forty two.

This can feel like a hidden cost of homeownership. You get used to a certain monthly payment, and then suddenly it jumps. But there are ways to prepare for this and to handle it if it happens.

First, check your property tax assessment every year. Most counties send out a notice showing the new assessed value of your home before the tax bill is set. If you think the value is too high, you have the right to appeal. The process is usually simple. You gather evidence, like recent sales of similar homes in your neighborhood, and file a complaint with your local assessor’s office. If you win, your property value is lowered, and your tax bill goes down. This can reduce or avoid the increase in your escrow payment.

Second, keep an eye on your escrow account statement. Your lender is required to send you an annual escrow account statement. It shows how much money came in, how much was paid out for taxes and insurance, and what the balance is. If you see a shortage coming, you can sometimes make an extra payment to cover it before it gets added to your monthly bill. That way, your regular monthly payment stays lower.

Third, consider paying your taxes yourself. Some lenders allow you to cancel your escrow account once you have built up enough equity in your home, usually twenty percent. But this is not always allowed, and you need to ask your lender. If you do cancel escrow, you are responsible for paying your property taxes on time. That means setting aside money each month on your own and remembering the due dates. For many people, the escrow system is easier because they do not have to think about it.

Finally, remember that property tax increases are usually gradual. They do not happen every year in every place. But when they do happen, your mortgage payment will go up. Plan for this by building a little extra room in your budget. If you know your area is seeing rapid home value increases, expect your payment to rise within a year or two. Being prepared makes the change less stressful.

In short, rising property taxes affect your monthly mortgage payment through your escrow account. The lender adjusts your payment to cover the new tax amount and any shortage in the account. You can fight back by appealing your assessment, monitoring your escrow account, and maybe even controlling your own taxes. The key is to stay informed and not be caught off guard.