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Is it better to pay my property taxes directly or include them in my mortgage payments? 

 January 24, 2021

By Scott Teesdale  

minutes read time

As a homeowner, you have at least two options for paying your property tax:

  • Annual or bi-annual payments directly to your local tax office (usually done online), or
  • monthly payments lumped into your mortgage payments.

TLDR: We try not to take strong opinions here at OurFamilyPlace but here is our rule of thumb. If you are diligent about making your payments on time and want the extra cash each month to manage on your own, then pay your taxes directly to the state. If you don’t want to deal with the hassle of figuring out how to pay or the headache of managing the payments, simply lump your property tax payment into your monthly mortgage. Don’t overthink this, just choose one and focus your valuable time on other important homeowning details.

A prospective homeowner’s decision can impact how much they pay each month, but making larger payments two times out of the year can also become a struggle. Before a homebuyer can make a decision regarding which is best for them, it’s helpful to know the different options that they have, how they go about paying the fees, and the pros and cons of each option. If homeowners don’t mind paying an extra fee, they can make payment on their property tax or mortgage using their credit card. This knowledge can serve beneficial when it comes to budgeting and more.

How often do you pay property tax?

The question of how often does one have to pay property taxes comes down to how they want to pay. As you’ll read below, if you pay directly to the state, the payments will likely be bi-annually (but check your state, it may differ!), whereas if you pay through your mortgage, it will likely be monthly.

All options to pay your property taxes

Thankfully, there’s not one specific way that homebuyers can pay property taxes. There are various options that allow them to pay the entire yearly cost that works with their budget. Having options allows homebuyers to plan as they go through the process of buying their home properly. Even more, it’s something they can detail when finalizing escrow. Below, we’ll explain a few of the options that people can and typically do choose when it comes to paying their property taxes:

  • Lumping it into their mortgage payment: A homebuyer can have their mortgage payments combined with their property taxes, so they are paying more each month. The monthly payment goes into an escrow account that pays the property taxes at the end of each year.  
  • Paying the local tax office twice each year: Property tax payments may be made to the local tax office on a payment plan consisting of two payments each year. These are usually thousands of dollars and can change each year. Each state has its own set of payment plans, so be sure to look into it.
  • Paying the local tax office on a different schedule: Homeowners may try to make payments more often but pay less each time they pay.

When a homebuyer closes on a home, it’s important that they make a decision that best suits their budget. We know that determining a budget is one of the most important things a homebuyer can do, and knowing how much to pay in property taxes and how to pay them can factor into the decisions homebuyers may make.

Pros and cons of paying property tax directly

Before a homeowner decides to pay their property tax directly, it’s crucial to recognize the various pros and cons. There are many benefits to this option, but there are also problems that may arise when making direct payments. 

The pros:

  • There are typically set payment amounts that the homeowner can prepare for and keep as part of a budget plan.
  • The homeowner can create a savings account and receive interest payments towards paying the property tax. When solely paying as part of the mortgage, there is no interest accrued. 
  • The direct payment means a reduced monthly payment for the home owner’s mortgage because the escrow fund isn’t included.

The cons:

  • The homebuyer is responsible for calculating out how much to pay, where to pay, and when to pay. Although this sounds easy at first, the government doesn’t always make it so straightforward. Check with your state first to see whether you can pay online.
  • If a homebuyer doesn’t properly prepare for direct payments to a local tax office, they may not have enough money to pay for the payments as they occur. The amount for each payment is usually around the same amount each time, but it’s rarely ever exactly the same-there are fees and processing charges that may change each time.
  • Forgetting to pay property taxes can lead to extensive amounts due, and it could leave the homebuyer in debt. 

If a homebuyer knows that they can afford to make a direct payment to the local tax office and that they won’t forget it, this may be the best possible option. It is helpful in keeping monthly payments low. However, if budgeting is much more difficult for a homeowner, choosing to opt-out of an escrow fund could be problematic. 

Pros and cons of including property tax in mortgage payments

Another option that homebuyers have is creating an escrow fund that becomes part of their monthly mortgage payments. The concept for adding payments in a mortgage can be looked at as PITI, or principal, interest, taxes, and insurance.  

They pay their monthly mortgage, and in turn, some of that money goes into an escrow fund that will be used to pay the two property tax payments. As with the option of a direct payment, there are numerous benefits to including property taxes in a mortgage payment and some disadvantages that homebuyers should be aware of when making a decision. Of course, many homebuyers have the option to opt-out of including their property tax in monthly mortgage payments, but before doing so, it’s vital to know whether or not it’s the right choice.

The pros:

  • A homebuyer can pay their entire property taxes in installments with a little bit of the funds going towards them each month. Because many people don’t save thousands of dollars for the year, a monthly installment is often a better and safer option.
  • A monthly payment allows for easier budgeting while also helping the homebuyer to make the payment without having to remember to make it.

The cons:

  • When a homebuyer includes the property tax with monthly payments, it could mean a changing mortgage amount. The mortgage the homebuyer pays one year can increase the following year if property taxes increase. 
  • The inclusion of property taxes in mortgage payments can make for a higher closing cost when going through escrow. It’s important for homebuyers to speak with their lender and real estate agent to learn if it’s right for them.
  • Do you trust that your bank is competent enough to pay the correct amount? Do they charge a lot of fees? Is the amount owed in property taxes being charged interest by your lender? These are all questions a homebuyer should find out before paying through their lender.

Any home buyer should weigh their options carefully before making a decision. The choice they make can impact their budgets for years to come. Homebuyers should take their time and research their respective state to determine the best option for them when the time comes. Without knowing the possibilities, homebuyers may encounter financial problems and issues with their property taxes down the road.

How to pay your property taxes online

This topic is too detailed and requires its own post but suffice it to say, the best way to pay your taxes online is by first googling for your state’s website (i.e., where to pay my property taxes online in <your-state-name>). If you would like us to write a much more detailed post about how to pay online, send us a note and we’ll publish a detailed step-by-step. In the meantime, good luck with your search and hope this article helped clear up some (mis-)information.

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I use data and technology to help Millennials navigate the ins-and-outs of buying or selling a home in today's market. From appraisals to mortgages to zoning, I cover it all with the goal to teach others. Connect with me on social via the icons above.

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