Understanding Property Taxes: How They Impact Your Mortgage Payments

Introduction

When you’re calculating your mortgage payments in the USA, one major factor often overlooked is property tax. Every state—and even every county—has different property tax rates. These taxes directly impact your monthly mortgage payment and overall affordability.

In this guide, we’ll explain how property taxes work, how they affect your mortgage, and how to plan for them as a homebuyer.

What Are Property Taxes?

Property taxes are local taxes charged by your county or city government. They are used to fund schools, police, fire departments, and other community services. Property taxes are based on the assessed value of your home and the local tax rate.

How Property Taxes Affect Mortgage Payments

When you take out a mortgage, lenders often require you to pay property taxes monthly into an escrow account. This means your mortgage payment includes:

• Principal
• Interest
• Taxes
• Insurance (PITI formula)

Example: Property Taxes in Action

• Home Price: $300,000
• Property Tax Rate: 1.2%
• Annual Property Tax = $3,600
• Monthly Tax = $300

So if your base mortgage payment is $1,500, your total monthly payment becomes $1,800.

State-by-State Variation

• New Jersey → Highest property tax rates (2.21%).
• Hawaii → Lowest property tax rates (0.27%).
• Texas, Illinois, New Hampshire → Above national average.

Tips for Homebuyers

• Research your state’s property tax before finalizing a home.
• Remember: property taxes can increase over time.
• Always include taxes when using a mortgage calculator.

Conclusion

Property taxes may seem small, but they can add hundreds of dollars to your monthly payment. Before buying a home, use a state-specific mortgage calculator to estimate your real monthly costs. This way, you won’t be surprised when your lender adds property taxes to your escrow account.