Understanding Mortgages: Property Taxes

In the midst of one of the most uncertain real estate markets in history, it's more important than ever to be informed. In a continuing series, we take a look at some of the most pressing questions about mortgages, refinancing, home equity, and other real estate options available to you.

(9/10/2012) When obtaining a mortgage, many people focus on the principal and interest as the primary components of a monthly payment. But property tax can't and shouldn't be forgotten.

Property taxes are taxes issued by local government entities to fund programs like public schools and other infrastructure. Taxes can be levied by state, county and other local governments, along with school districts and special districts like fire departments. The total property tax burden is the combined percentage of property value from each of these organizations. States may have a maximum total property tax allowed.

Property tax is levied as a flat rate percentage of the value of the property, which is determined by an assessment from a government-appointed inspector solely for the purpose of taxation. Property taxes can range widely in different areas, but within the specific district everyone receives the same rate. As property values rises or falls, property taxes will do the same.

Taxes may change year-to-year due to market value of the property, but also the needs for government funding.

Typically, property taxes are due each year. They are assessed in arrears, meaning that the taxes paid in one year are actually for the taxes of the previous year. While property taxes are only due once a year (or quarterly), most lenders require borrowers to set aside funds each month towards this tax payment in an escrow account. Local tax agencies then collect tax payments from the escrow account instead of from the borrower directly.

While property taxes may seem like a burden, they are actually a benefit for home owners when it comes tax time. Property taxes can be deducted from your taxes if they are paid on a property that is your primary residence.

For Additional Reading:

How are Property Taxes Calculated? http://taxes.about.com/od/statetaxes/a/How-are-property-taxes-calculated.htm

Glossary of Tax Terms:
http://www.cookcountyclerk.com/tsd/glossary/Pages/default.aspx

 

 

 

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Understanding Mortgages: The Formulas of Mortgage Approval

Understanding Mortgages: What is Escrow?

Home Insurance Costs on the Rise, Coverage Options Decrease

Tax advice for year-end charity contributions

Homeownership & Taxes: How Good Records Can Save You a Bundle

 

 

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