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It’s the end of June, which means school has ended and summer has begun. For homeowners, you’ve also received your 2024 property tax bill with a due date of June 30, 2024 – but did you know that you have several options for paying your property taxes?
Why Property Taxes Matter to Lenders
Property taxes are a priority on your land title, meaning they must be paid before any other claims on the property. This is why lenders often require proof of your property tax amount and payment status; they want to ensure the account isn’t in arrears, as the municipality is always first in line to receive its dues.
Your Options for Paying Property Taxes
When it comes to paying your property taxes, you have three options:
- Lender Payment: Your lender may have an option where you can choose for them to collect your property tax payments along with your monthly mortgage payments and pay the city on your behalf.
- Annual Lump Sum Payment: You can pay the full balance directly to the city when it’s due in June.
- Monthly Installment Plan: You may also be able to register with your municipality to make monthly tax installment payments, so you don’t have to worry about paying the entire amount in one lump sum. This service is often referred to as TIPP (Tax Installment Payment Plan).
Pros and Cons of Lender Payments
While having your lender manage your property tax payments can seem convenient, it does come with potential downsides. Lenders often over-collect, which can reduce the cash you have on hand. In the event that your property tax bill comes in higher than the amount they’ve set aside in your property tax account, the lender will pay the tax bill in full. However, this will result in a significant increase in your monthly mortgage payments to cover the shortfall in the following year.
For first-time homeowners, letting the lender handle property taxes during the first term can be beneficial while you get accustomed to managing a household budget. However, it’s important to understand how property tax cycles work to avoid any surprises.
Switching or Refinancing with a Lender Holding a Tax Account
If you decide to switch or refinance away from a lender that holds a tax account balance on your behalf, it’s crucial to know their policy on handling that balance. Many lenders will apply the tax account balance to the principal mortgage balance, which means you’ll be responsible for the next tax bill. In some cases, you can request the tax account balance be disbursed directly to you, but this request must be made before closing and is not always accommodated by all lenders.
Managing Property Taxes on Your Own
Due to the complexity of managing property tax accounts, more lenders are opting out of collecting these payments and requiring homeowners to make their own arrangements. While this adds a layer of responsibility, it can also provide more control over your finances and ensure you’re not overpaying.
Where Can I Find My Local Property Tax Site?
Navigating property taxes can be daunting, especially for new homeowners. Understanding your payment options, the implications of lender-managed payments, and the policies of your lender when switching or refinancing can help you make informed decisions. As property taxes are a significant financial obligation, taking the time to understand and manage them effectively is essential for maintaining your financial health and ensuring your homeownership experience is as smooth as possible.
Questions? Our team is always happy to help. Contact us today to learn more about property taxes with your specific lender.
