Does Mortgage Include Property Tax?- Easily Explained

Yes, property tax is included in most mortgage payments. Because it protects lenders in property foreclosure cases and saves borrowers from the hassle of paying property tax in one installment.     

Owning a new home comes with a lot of responsibilities. One such responsibility is paying property tax. You may not like it. But you must pay it every year one way or another. However, what if property tax is included in your mortgage payment? Won’t it be good

Because like your mortgage property tax can be paid in small installments each month. But does mortgage include property tax? 

Well, that’s what I am going to explain in this article. Moreover, I’ll also cover Are homeowners insurance also included in the mortgage, whether your mortgage payment goes down when property tax decreases, and all the related questions. So, stay here till the end.  

Does Mortgage Include Property Tax?

In most mortgages property tax is included nowadays. Because including property tax in mortgage benefits both the lender and the borrower. However, to find out whether property tax is included in your mortgage or not, look at your mortgage policy or ask your lender. 

When you own a property, you must pay property tax. No matter what state you live in. Property tax might vary depending on your property size and state. But you have to pay for it each year. 

In case, anyone fails to pay property tax, there is a tax lien placed on his/her property. If they don’t clear the lien with fines then the property might be sold in a tax foreclosure sale. Moreover, if that property is still on a mortgage then lenders have to pay the full tax foreclosure amount to get the rest of the mortgage money.

To avoid this kind of situation lenders include a 1/12 of property tax in monthly mortgage payments. Then before the property tax due date, the whole tax amount is paid by the lender on behalf of the homeowner. Some mortgage companies even lower the interest rate if lenders include the property tax in their mortgages. 

On the other hand, including property tax in mortgage payments benefits the new homeowners too. Because it saves the burden of paying property tax in one or two installments. Moreover, they get low-interest rates and don’t have to take the hassle of paint tax by themselves. 

However, property tax is paid by the mortgage company until the mortgage is paid off. After that,  homeowners have to pay their property tax themselves. But what about FHA mortgages?  

Are Property Taxes Included In FHA Mortgage?

Yes, property taxes are included in FHA mortgage payments. Because it saves first-time home buyers from the burden of paying property tax in one installment and also protects them from late tax penalties.   

FHA mortgage provides a great deal for first-time home buyers. To make the property tax process simple and avoid tax penalties, Property taxes are included in FHA mortgage payments. 

Moreover, property taxes are a necessary expense for homeowners. Like any other mortgage, FHA mortgage borrowers pay 1/12 of property tax each month. The tax amount is kept in an escrow account. When the property tax due date comes, the tax is paid by the FHA mortgage authority. 

There are a few exceptions to this rule for some counties, but they are rare. But is there any other tax included in the mortgage payment? 

What Taxes Are Included In Mortgage?

In most cases, only property tax is included. However, if your state imposes any other tax in owning a property then it might be added to your mortgage payment too.

Mortgage payments consist of four main components. They are

  1. The Principal: The principal includes a portion of the actual money you borrowed from the bank. 
  2. The Interest: The interest is the fee the bank charges for lending you the money.
  3. The Taxes: The taxes are the portion you have to pay your state government for owning the property. 
  4. The Insurance: The insurance is the fee you pay to protect your loan and your house.

So, in most cases, only property tax is included in your mortgage payment. However, there can be exceptions depending on your state and mortgage company. So, what about insurance? 

Are Homeowners Insurance Included In Mortgage?

Yes, in most mortgage loans, Homeowners insurance is included in the monthly mortgage payment. Because Homeowners insurance is a must to be a homeowner and lenders have to protect their interest until the mortgage is paid off.   

Homeowners insurance is a must-have for every homeowner. Because it protects your home and belongings in the event of a fire, burglary, or another covered event.

On the other hand, it protects your lenders investment which is your mortgage they collect interest on.  As a result, Homeowners insurance is added to mortgage payments. 

Moreover, other insurances like Mortgage insurance, Flood insurance might also be added with your mortgage payment.

However, some mortgages require the policyholder to pay for homeowners insurance separately. So, It is important to read your mortgage agreement carefully to determine if homeowners insurance is included in your monthly payment. 

Now let’s find out If my property taxes go down will my mortgage payment go down? 

If My Property Taxes Go Down Will My Mortgage Payment Go Down?

Yes, your mortgage payment will go down if your property tax goes down. However, you might not get the extra amount you paid instantly. You have to wait till the property tax is paid. 

In case your mortgage payment includes property Tax then when tax is decreased your mortgage payment will slightly go down. Because in monthly payments, you only pay 1/12 of your mortgage. So, your monthly payment will go down slightly. 

Moreover, if your tax goes down in the middle of the year and you have paid half of the property tax then the extra money you paid will be returned after the tax is paid for the year. 

On the other hand, if your property tax goes up then your mortgage payment will also rise. 

In Summary

you must read your mortgage loan policy carefully to find out whether property tax and insurance are added or not. I know they are hard to understand. So, take help from experts if needed.

Lastly, it is suggested to consult with a mortgage counselor before signing off the mortgage. 

That’s it for today. Have a great day!

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