Goodspeed: Real estate taxes are based on value, not your mortgage
QUESTION:Are real estate taxes based on the size of your mortgage? I just took out a $400,000 mortgage and my brother told me my taxes would be based on that amount. Does that mean my taxes will go down as I pay off the mortgage?
ANSWER: Your brother gave you some bad information. Whether you have a mortgage on your property or not has no bearing on what you pay in property taxes. Your real estate taxes are based on the actual value of your home or what the local taxing authority believes your home is worth.
If you purchased your home for $500,000, the taxing authority might base your real estate taxes on your purchase price or have some other formula for determining the value of your home. Once it has determined the value of your home, the taxing authority sets the amount of taxes you must pay based on a complicated formula.
It has nothing to do with the size or whether you even have a mortgage. If the local taxing authority says your property taxes are $8,000 a year, you are legally obligated to pay that amount.
Most homeowners with a mortgage will be required by their lender to pay their real estate taxes monthly into an escrow account. In addition, lenders will require homeowners to escrow their home insurance premiums. These two escrows for real estate taxes and insurance are usually a little higher than the actual bills to cover any higher-than-expected amounts.
Whatever the sums turn out to be, they are added to the homeowner’s monthly mortgage payment. When the taxes and insurance come due, the lender pays these amounts from the escrow accounts.
Obviously, the main reason the lender holds these amounts is to make sure they are paid on time so the insurance on the home does not lapse and the home is not sold for back taxes.
When you pay off your mortgage, the lender no longer has any obligation or incentive to pay your real estate taxes or insurance. You must take on these obligations to pay these bills in full and on time yourself.
Check with your community’s tax assessor’s office to make sure your address is on the tax bills so you will receive it.
Linda Goodspeed is a longtime real estate writer and author of “In and out of Darkness.” Email her at: firstname.lastname@example.org.