Property tax went up how does it affect my mortgage

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Faisal
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Property tax went up how does it affect my mortgage

Post by Faisal » Tue Oct 29, 2019 6:47 am

Okay I bet this is a dumb question but first time home owner in the US. Completely unfamiliar with how taxes etc work.

So our over all taxes went up this year. By 1610 US dollars. An extremely large increase because I have been told we are new home owners and just bought the place and the home reassessed as being worth 10,000 US dollars more or there abouts.

How does this affect my mortgage payment? Do I pay the monthly rate of 134.16 US dollars (1601/12) every month now on top of my mortgage payment? Say my payment is 4000. Do I now pay 4134.16 US dollars monthly?

Hockey10
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Re: Property tax went up how does it affect my mortgage

Post by Hockey10 » Tue Oct 29, 2019 7:00 am

Your bank should automatically adjust the amount due on your monthly mortgage statement. If this does not happen or you still have questions, just call the bank.

retiredjg
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Re: Property tax went up how does it affect my mortgage

Post by retiredjg » Tue Oct 29, 2019 7:02 am

In most places, property taxes are paid once a year. Many people choose to pay their property taxes in their mortgage payment - the amount for the property tax is held in an "escrow" account until the time when the property tax is actually due.

If you are paying your property tax this way, the mortgage holder has also gotten a notice that your property tax went up. They will send you a statement (once a year) telling you if your escrow account does not hold enough money to cover the upcoming bills. At that time, you may have a choice of just paying the extra directly or your mortgage payment may go up to cover the shortage.

So, yes, your mortgage payment will go up but you do not need to do anything until you get notification of how much to pay.

IMhooked
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Re: Property tax went up how does it affect my mortgage

Post by IMhooked » Tue Oct 29, 2019 7:09 am

Not a dumb question at all. You're staying on top of things and avoiding a bump in the road in the next couple months before the taxes come due. Take action on the replies you get and your questioning will put you in a better place! Lots of great knowledge here!

Do you escrow your property taxes with your bank? After a few years we stopped escrow of property taxes with the bank and managed the property taxes ourselves. For example if we know our bill has historically been around $5000 we just set that aside in high interest online savings and when the bill comes in December we just write the check.

I would get with your Mortgage lender/originator and speak with them. Another thing you can do is set the extra approx $135 aside in high interest online savings account to cover an impending higher property tax bill.

After the first year of home ownership we also asked them to get a printed amortization schedule (which we use at our house to see how much interest we save whenever we put extra principal on our mortgage--sort of makes the pay-down visual and fun :sharebeer.

Did you put 20% down on your mortgage? If you didn't and you have PMI it might be worth looking into ordering a reappraisal on top of the assessment that was down to see if you are closer to removing PMI.

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Brianmcg321
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Re: Property tax went up how does it affect my mortgage

Post by Brianmcg321 » Tue Oct 29, 2019 7:12 am

Were I live, my property taxes are paid separately. I receive a bill from the county in the mail every year.

If I hear the assessers are roaming the neighborhood, I stick an old Camaro on blocks in the front yard.
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bob60014
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Re: Property tax went up how does it affect my mortgage

Post by bob60014 » Tue Oct 29, 2019 7:19 am

To add, if the taxes are paid through escrow, be sure your mortgage servicer pays it. Double check with where your tax payment is to be sent, that it's actually been paid. Unfortunately paperwork issues, funds applied to the wrong account, etc .. occur. Stay on top of it.

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RickBoglehead
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Re: Property tax went up how does it affect my mortgage

Post by RickBoglehead » Tue Oct 29, 2019 7:23 am

retiredjg wrote:
Tue Oct 29, 2019 7:02 am
In most places, property taxes are paid once a year. Many people choose to pay their property taxes in their mortgage payment - the amount for the property tax is held in an "escrow" account until the time when the property tax is actually due.

If you are paying your property tax this way, the mortgage holder has also gotten a notice that your property tax went up. They will send you a statement (once a year) telling you if your escrow account does not hold enough money to cover the upcoming bills. At that time, you may have a choice of just paying the extra directly or your mortgage payment may go up to cover the shortage.

So, yes, your mortgage payment will go up but you do not need to do anything until you get notification of how much to pay.
Just to clarify. Often people don't get to choose to use an escrow account. The bank chooses. They may require taxes AND homeowner's insurance be escrowed monthly, because they don't trust the buyer of the home to make these payments on their own, and know that if the payments are missed they (the bank) could lose their collateral (the home) if somehow it got foreclosed and they missed it (unlikely).

OP should check with their bank to see a) what is escrowed and b) if the bank got the notice.
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Faisal
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Re: Property tax went up how does it affect my mortgage

Post by Faisal » Tue Oct 29, 2019 7:29 am

And this is why I love Bogleheads. Thank you all very very much.

To answer the questions.

1. Yes it is held in an Escrow account and they have been paying our taxes on time for us.
2. We have not received a letter yet from the bank but I saw on line on Facebook and next-door that taxes have gone up so I called.

I will call the bank and follow up to make sure we are up to date on payments and if they got the notification.

Mr. Rumples
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Re: Property tax went up how does it affect my mortgage

Post by Mr. Rumples » Tue Oct 29, 2019 7:33 am

My taxes went up, but not my mortgage payment two years ago. When I called the mortgage company they explained that they only do an escrow review once a year. Sure enough, it took a few months before my monthly payment increased.

They gave me a few options: pay the entire shortage when I became aware of it before they notified me; pay the shortage when they did the annual review and notified me, or pay an increased monthly amount after the annual review. I chose the last. This year, due to them having to make up the difference, there was too much in the escrow account and so my monthly total payment went down.

Lenders provide a yearly escrow review. You can look at last years to get a better idea of how it all works.

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RickBoglehead
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Re: Property tax went up how does it affect my mortgage

Post by RickBoglehead » Tue Oct 29, 2019 7:35 am

Faisal wrote:
Tue Oct 29, 2019 7:29 am
And this is why I love Bogleheads. Thank you all very very much.

To answer the questions.

1. Yes it is held in an Escrow account and they have been paying our taxes on time for us.
2. We have not received a letter yet from the bank but I saw on line on Facebook and next-door that taxes have gone up so I called.

I will call the bank and follow up to make sure we are up to date on payments and if they got the notification.
Just to be clear, reading that "taxes have gone up" is not the same as taxes going up. In most areas, tax bills are issued twice per year. In our area, we get a bill for a "Winter tax" that is due by 2/15 usually in mid-November, and we can't pay it until at least December 1st. We then get a "Summer tax" bill that is due by 9/15 usually in mid-May that is not payable until at least July 1st.

So, while "taxes may have gone up", the bank may not receive official notification of taxes going up until such time as the tax bill is actually issued, which if your cycle matches ours means in a few weeks.

And, as Mr. Rumples noted, they may only adjust escrow yearly.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Faisal
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Re: Property tax went up how does it affect my mortgage

Post by Faisal » Tue Oct 29, 2019 7:43 am

RickBoglehead wrote:
Tue Oct 29, 2019 7:35 am
Faisal wrote:
Tue Oct 29, 2019 7:29 am
And this is why I love Bogleheads. Thank you all very very much.

To answer the questions.

1. Yes it is held in an Escrow account and they have been paying our taxes on time for us.
2. We have not received a letter yet from the bank but I saw on line on Facebook and next-door that taxes have gone up so I called.

I will call the bank and follow up to make sure we are up to date on payments and if they got the notification.
Just to be clear, reading that "taxes have gone up" is not the same as taxes going up. In most areas, tax bills are issued twice per year. In our area, we get a bill for a "Winter tax" that is due by 2/15 usually in mid-November, and we can't pay it until at least December 1st. We then get a "Summer tax" bill that is due by 9/15 usually in mid-May that is not payable until at least July 1st.

So, while "taxes may have gone up", the bank may not receive official notification of taxes going up until such time as the tax bill is actually issued, which if your cycle matches ours means in a few weeks.

And, as Mr. Rumples noted, they may only adjust escrow yearly.
Did not know that. Thank you for the heads up. I will check if they have been informed. The next date for payment is Jan 2020. Just want to make sure they are upto date on our payments so far adn how they plan on adjusting the escrow.

ryman554
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Re: Property tax went up how does it affect my mortgage

Post by ryman554 » Tue Oct 29, 2019 8:42 am

Faisal wrote:
Tue Oct 29, 2019 7:43 am
RickBoglehead wrote:
Tue Oct 29, 2019 7:35 am
Faisal wrote:
Tue Oct 29, 2019 7:29 am
And this is why I love Bogleheads. Thank you all very very much.

To answer the questions.

1. Yes it is held in an Escrow account and they have been paying our taxes on time for us.
2. We have not received a letter yet from the bank but I saw on line on Facebook and next-door that taxes have gone up so I called.

I will call the bank and follow up to make sure we are up to date on payments and if they got the notification.
Just to be clear, reading that "taxes have gone up" is not the same as taxes going up. In most areas, tax bills are issued twice per year. In our area, we get a bill for a "Winter tax" that is due by 2/15 usually in mid-November, and we can't pay it until at least December 1st. We then get a "Summer tax" bill that is due by 9/15 usually in mid-May that is not payable until at least July 1st.

So, while "taxes may have gone up", the bank may not receive official notification of taxes going up until such time as the tax bill is actually issued, which if your cycle matches ours means in a few weeks.

And, as Mr. Rumples noted, they may only adjust escrow yearly.
Did not know that. Thank you for the heads up. I will check if they have been informed. The next date for payment is Jan 2020. Just want to make sure they are upto date on our payments so far adn how they plan on adjusting the escrow.
They are well aware of what the tax bill is if they have been paying it already. Don't bother the bank about it until they screw it up.

It is still your responsibility to make sure that the tax has been paid. Does your tax/assessor/department/whatever have an online presence so you can look up your current tax liability and history of payments? If so, then you know when to look to make sure the bank does it's job.

As for the escrow, these are governed by the state/county laws, including interest required. Generally, the bank makes sure that your escrow count never goes below 0, so they ask you to escrow some reserve... to account for the increase in property taxes / insurance rates. If it goes below 0, don't worry, the bank will still take care of it. You will just get a lot larger escrow payments over the next year (which will likely get smaller the following year as you have rebuilt your reserve) which cause your monthy "mortage" (PITI) payment to increase. Your mortgage payment (the Principal and Interest part) remains the same. Only the escrow part (Taxes and Insurance) can vary.

You will probably pay extra around twice the (increase in property tax / 12) to replenish escrow (and have enough for next year) over the next twelve months once the escrow resets.

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teen persuasion
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Re: Property tax went up how does it affect my mortgage

Post by teen persuasion » Tue Oct 29, 2019 2:52 pm

Timing of the escrow review can wreak havoc on the adjustments. Our escrow see-sawed up and down every year, because the escrow review was in August, but our school tax bill was released Sept 1. They had a formula where they looked at last year's total (property tax and homeowners insurance in January, and school tax previous September), divided by 12, plotted out expected balances every month based on contributions and payouts. If any month balance was too low (nowhere near zero, I think it was 1/5 the annual total IIRC), an extra amount was added to the escrow to compensate. So school taxes rose, payout was made from planned padding, next year's escrow increased by the past increase in school taxes PLUS more to get padding back to approved levels. Next year, extra padding pushed balances too high, a refund of the excess was sent to us, and school taxes went up again triggering a new round of oversized escrow increases.

If the review wasn't immediately BEFORE an increase, there would have been a more balanced effect, but reviews HAD TO BE DONE in August. :annoyed

So every other year I sent the escrow refund back as an extra principal payment. Didn't have the option to just leave it in escrow for the upcoming bill, of course.

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