Homeowners are required to pay property taxes every year. Typically they are determined by the municipality and based on a property’s assessed value. The money collected goes towards funding infrastructure. This includes schools, recreation facilities, parks and green spaces, maintaining roads, and hiring police officers and firefighters.
When taking possession of a new home, property taxes can be confusing. Lenders can include them with your mortgage payment, or property taxes can be paid to the municipality directly. Property taxes are due on June 30th for the calendar year. Notices are mailed to property owners sometime in May.
When property taxes are included with your mortgage, your property tax notice will state on the bottom that a copy went to the lender’s tax department. The lender will take care of the bill payment on your behalf.
If you choose to have your property taxes included with your mortgage payment, the lender will collect the money with each payment you make. The money goes into your tax account and accumulates over the year. Property taxes are paid in the middle of the year for the entire calendar year.
The lender doesn’t always have enough money to cover the tax amount owed, for clients who purchased a new property after June 30th. In this case, the tax account will go into a deficit to cover the balance owed to the city, town or county. Most lenders will allow this and increase the tax amount on your mortgage payments. This will allow you to get caught up, and on track for the following year. The lender charges a small amount of interest each month on the deficit amount. You can also make arrangements to pay a lump sum payment into your tax account to avoid this scenario.
When property taxes are not included with the mortgage payment, you are responsible for making arrangements to pay the tax balance owed. Some homeowners will set up a tax account with the city, town or county and contribute to it monthly. Other homeowners will pay the full amount on June 30th from the money they saved on their own.
Budgeting for property taxes ahead of time is important. Do not let the full bill sneak up on you. Always start saving to cover your property tax bill on June 30th.