Property tax is usually not part of your mortgage payment itself, but your lender may collect it through escrow
Your mortgage payment covers principal and interest — the money you borrowed and the cost of borrowing it. Property tax is a separate bill from your local government. However, most lenders require you to pay property tax through an escrow account, which means the lender collects a portion of it each month along with your mortgage payment, holds it, and pays the tax bill when it comes due.
This arrangement protects the lender: if property tax goes unpaid, the government can place a lien on the house and potentially foreclose. By collecting escrow, the lender ensures the tax gets paid. You still owe the tax — you are just paying it through your lender instead of directly to your county assessor.
Some loans do not require escrow. If you put down 20 percent or more, have excellent credit, or refinance into a loan with different terms, your lender may let you pay property tax on your own. In that case, your mortgage payment contains only principal, interest, and possibly homeowners insurance and mortgage insurance.
Key Takeaways
- Property tax is not part of the mortgage principal and interest calculation, but most lenders collect it monthly through escrow and pay it annually or semi-annually.
- Your monthly mortgage statement usually shows principal, interest, taxes, and insurance (often abbreviated PITI) as separate line items, even though you send one payment.
- Property tax rates and amounts vary by county and change yearly based on assessed home value, so your escrow payment may increase or decrease.
- If your lender does not require escrow, you pay property tax directly to your county assessor on their schedule, separate from your mortgage payment.
- An escrow analysis each year may result in a surplus or shortage; your lender will adjust your monthly payment or send you a refund accordingly.
How escrow collects and pays your property tax
When you close on a mortgage, your lender estimates your annual property tax based on the assessed value of the home and your county's tax rate. They divide that estimate by 12 and add that amount to your monthly payment. This money goes into an escrow account held by the lender or a third-party escrow company, not into your personal savings.
When your property tax bill comes due — usually once or twice a year depending on your county — the lender pays it from the escrow account using the funds you have been sending. You receive a statement showing the payment was made on your behalf. The lender keeps records of these payments and provides them to you at tax time if you need proof.
Because property tax bills vary by county and can change year to year, your escrow payment is an estimate. If the actual tax bill is higher than estimated, you may owe a shortage. If it is lower, you may receive a surplus refund or a credit toward future payments.
When property tax is not included in your mortgage payment
Some borrowers are not required to maintain escrow. This typically happens when you have a strong financial profile: a down payment of 20 percent or more, a credit score above a certain threshold (usually 740 or higher), or a loan-to-value ratio low enough that the lender feels confident the property will not be foreclosed. Cash buyers and those refinancing into portfolio loans may also avoid escrow.
If escrow is not required, you receive a separate bill from your county assessor and pay it directly on their schedule. Your mortgage payment contains only principal, interest, and possibly homeowners insurance and mortgage insurance — not property tax. You are responsible for tracking the due date and submitting payment yourself.
Even if escrow is not required at closing, your lender can require it later if you fall behind on taxes, miss mortgage payments, or your credit score drops significantly. Some lenders also require escrow if you refinance or if the property value changes substantially.
Reading your mortgage statement to find property tax
Your monthly mortgage statement breaks down where your payment goes. The standard format is PITI: Principal, Interest, Taxes, and Insurance. Each line shows how much of your payment covers each category.
Principal is the amount reducing your loan balance. Interest is the cost of borrowing. Taxes are your property tax contribution to escrow. Insurance includes homeowners insurance and, if applicable, private mortgage insurance (PMI) or mortgage insurance premium (MIP) for FHA loans.
If your statement shows only principal and interest, escrow is not part of your loan. You will receive property tax bills separately from your county. If your statement shows PITI or lists "taxes" and "insurance" as line items, those amounts are being collected through escrow.
Property tax changes and escrow adjustments
Property tax is not fixed. Your county assessor reassesses home values periodically — sometimes annually, sometimes every few years depending on state law. When the assessed value changes, your tax bill changes, and so does your escrow estimate.
Once a year, usually in the fall or winter, your lender performs an escrow analysis. They compare what they collected over the past year to what was actually paid out for taxes and insurance. If they collected more than needed, you receive a refund or a credit. If they collected less, your monthly payment increases to cover the shortage.
You will receive a notice of escrow analysis showing the old payment, the new payment, and the reason for the change. Property tax increases are the most common reason for payment increases. If your county reassesses and your home value rises significantly, expect your escrow payment to rise as well.
What happens if property tax is not paid through escrow
If you are responsible for paying property tax directly and you miss a payment, the consequences are serious. Your county will charge penalties and interest on the unpaid amount. After a certain period — typically 120 to 180 days, depending on your state — the county can place a tax lien on your property. This lien gives the government a legal claim against your home.
If the tax debt remains unpaid long enough, the county can foreclose and sell your home to recover the tax owed. This happens even if you are current on your mortgage. Your lender will not pay the tax for you if you miss it; they will only foreclose if the lien threatens their security in the property.
If you know you will miss a property tax payment, contact your county assessor immediately. Many counties offer payment plans or can delay collection briefly if you explain your situation. Paying late is better than not paying at all, because it stops the clock on penalties and prevents a lien from being filed.
Refinancing and changes to escrow requirements
When you refinance, your new lender may have different escrow requirements than your old one. If you refinance with a lower down payment or your credit score has dropped, the new lender may require escrow even if your old lender did not. Conversely, if you have built equity and your new loan-to-value ratio is strong, you may be able to drop escrow.
At closing, your new lender will conduct an escrow analysis based on your county's current tax rate and your home's current assessed value. They will estimate your new monthly escrow payment and include it in your loan estimate. This is one reason refinance payments can be higher or lower than your previous payment — the escrow component changes.
If you are dropping escrow, you become responsible for paying property tax directly. Make sure you understand your county's payment schedule and due dates before closing, so you do not miss a payment after refinancing.
Frequently Asked Questions
Can I pay property tax myself instead of through escrow?
Only if your lender does not require it. Most lenders require escrow if your down payment is less than 20 percent or your credit score is below their threshold. If your lender allows it, you can request to remove escrow, but you must prove you can pay the tax on time. Even then, the lender can reinstate the requirement if you miss a payment or your financial situation changes.
What if my escrow account runs short?
A shortage means the lender collected less than the actual tax bill. Your lender will notify you and increase your monthly payment to make up the difference over the next 12 months. You can also pay the shortage in full immediately if you prefer. Shortages happen when property tax increases between escrow analyses or when the initial estimate was too low.
Does property tax go down if my home value decreases?
It can, but not automatically. Your county assessor reassesses property values on their own schedule. If your home value drops significantly — for example, after a natural disaster or major damage — you can file a formal assessment appeal with your county. If successful, your assessed value and tax bill will decrease, and your escrow payment will be adjusted downward at the next analysis.
Who pays property tax if I have a second mortgage or home equity line?
The first lender (your primary mortgage holder) typically collects property tax through escrow. The second lender does not collect it separately. Property tax is a lien on the entire property, not divided between lenders. Your first lender's escrow account covers the full tax bill for the whole house.
What if I sell my house before the year ends?
At closing, your escrow account is settled. The title company calculates how much property tax you owe for the months you owned the home and how much the buyer owes for the remaining months. The seller (you) typically pays a prorated share of the annual tax bill. Any surplus in your escrow account is refunded to you at closing.