How Property Taxes and Insurance Can Affect Your Monthly Mortgage Payment - Quicken Loans Zing Blog

As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.

There are many reasons why your monthly payment can change. Your monthly payment includes your mortgage payment, consisting of principal and interest, as well as property taxes and homeowners insurance. Your mortgage payment is likely to stay the same, but your monthly payments can vary. Here, we look at what influences taxes and insurance and explain how these factors can change your monthly payment.

When you apply for a mortgage preapproval, you and your lender will estimate your monthly payment, including the principal and interest and also the estimated monthly escrow payment (which goes towards property taxes and homeowners insurance) based on a typical home in the area where you’re looking to buy.

You should also keep in mind that this estimate is just that- An estimate. It could be based partially on how much the previous owner paid in taxes and insurance or on what taxes in the area typically run. The true tax total won’t be determined until you decide on the house you want, and insurance won’t be calculated until you’ve chosen a company and the policy that’s right for you.

And as frustrating as it is, even after you’ve chosen a house, your monthly payment is subject to change before closing. Here’s why:

Property Taxes

Property taxes are based on the assessed value of the home. Several factors influence this, including, notably, the value of comparable properties in the area and condition of the home. The higher the home’s assessed value, the higher taxes will be. This means taxes will increase with renovations made. And when the economy is doing well, home values increase, and your property taxes will increase, too. When the economy isn’t as strong, property taxes can decrease as property values go down.

The physical location of the home also influences the tax rate. Because taxes help fund school districts, infrastructure and public services, property taxes are partially based on how much revenue is required to pay for these services in a given area. When cities and counties require additional funds, your taxes may increase.

Even if you know the exact amount that the seller of a particular home pays in taxes, you might not be paying the same amount. Taxes can vary depending on how you plan to use the property. The homestead exemption allows a portion of your taxes to be discounted, but this exemption is reserved for primary residences only. If you’re purchasing a second property to use as a vacation home or rental, you won’t be eligible for this discount, which changes your taxes and your overall monthly payment.

Homeowners Insurance

Lenders also estimate the cost of homeowners insurance based on zip code and comparable homes in the area. But the original estimate can be inaccurate, as insurance rates depend heavily on the provider and the deductible that clients choose. Your insurance payment will change once you decide on a specific policy. You decide how much coverage you want, the deductible you want to pay and whether you want to combine homeowners insurance with other types of insurance (such as car insurance). Because you can shop around for different insurance policies and receive discounts for bundling several policies together, your payment might differ from the one your lender estimated for you.

Figuring out how all these factors influence your monthly payment can be confusing and sometimes frustrating, but understanding why your payment changes can make the process go much smoother. If you have more questions as to why your monthly payment has changed, comment below.

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This Post Has 27 Comments

    1. Hi Gary:

      I’m going to suggest you speak to a tax expert about the second part of your question because that could honestly very based on the local tax laws in your area. In terms of when the exemption is factored in, if you send your servicer proof of the exemption, they can let you know how they would handle it in the future. You might get your money back in the form of an escrow overage refund the first year and then have lower monthly payments from then on. But I would ask about their policies.

      Thanks,
      Kevin

    2. If I qualify for a veterans property tax exemption on my home, in the county I live, will a lender take that into consideration when determining how much home I qualify for?

      1. Hi David:

        The debt-to-income ratio used to qualify you is based strictly on your existing debts in comparison to income. Taxes aren’t really taken into consideration. However, if you have any further questions one of our Home Loan Experts would be happy to take a call at (888) 980-6716.

        Thanks,
        Kevin

  1. Ive seen everyone ask the question about having your payments dropped if you tax bill changes the following year because of exemptions, I’ve seen your answer of escrow but my question is does that mean the lender now factors in the new taxes /12 into your monthly payment , or are you locked in at paying the original monthly payment and reimburse every year the difference?

  2. how old do i and my other buyer have to be before we are excempt from property tax we are both disabled i am going to be 68 in april he is 63

    1. Hi Louella:

      Local tax regulations vary, but I know of no municipalities where there are property tax exemptions based on age. That said, I would be sure to talk to a tax expert in your area. There’s often some level of exemption if you have a qualifying disability. You would probably still pay some property tax, but it wouldn’t be as high of a bill.

      Thanks,
      Kevin

  3. Hello,
    I received my Letter from County appraisal office for my 100% Disable Veteran + Homestead Exemption I am exempt from property taxes. Will this significantly decrease my mortgage payments? When can I expect to see the difference?

    1. Hi Jonathon:

      As far as how much it would affect your taxes, I’m really not sure because it depends on your local tax laws and what the rates are. In terms of when you’ll see the difference, mortgage lenders analyze your escrow once a year. Once your escrow is analyzed, then you monthly mortgage payment is adjusted because tax rate. If you’re a Quicken Loans client, you can find the schedule at the bottom of this post. Hope this helps!

  4. Hi,

    We purchased a home in November 2016, using an FHA loan. The county we live in did tax re-evaluations on all the homes in the area around June/July 2017. The property tax value of our home went down; however, we are still being charged the higher tax rate on our mortgage payment. When should we expect the payment amount to go down? Thanks!

    1. Hi Rachel:

      Excellent question. Mortgage servicers typically do escrow account analyses once a year. If you’ve paid more in taxes than you owe, you’ll get a refund check eventually for the overage in your account. If your loan is with Quicken Loans, there’s a table at the bottom of this post for when the analyses are done organized by month of analysis. Hope this helps!

      Thanks,
      Kevin Graham

  5. My taxes insurance and escrow are all included in my mortgage payment but it seem like every several months payment rises due adjustments HOW MANY TIMES DOES THIS HAVE TO HAPPEN WE ARE ON A TOTAL FIXED INCOME AND WE CANT AFFORD IT. What to do ? Thank you

    1. Hi Gilbert:

      Unfortunately, I’m afraid there’s not a ton that can be done. Generally, if your property values are going up, your taxes are going to go up. Your lender or servicer can’t do anything about that because it’s between you and the taxing authority. With that said, one thing you can definitely do is talk to a tax professional and make sure you’re taking every exemption you qualify for. After that, if the mortgage payment is still too high, you could contact your mortgage company about doing a modification in order to lower your payment. Those are really the options you have. Hope this helps at least a little.

      Thanks,
      Kevin Graham

    1. Hi Anthony:

      If your home insurance went down and you have your home insurance escrowed as part of your mortgage payment, your monthly payment should go down. However, escrow is typically analyzed once a year, so it may be sometime before you actually see the savings reflected in your monthly payment. The good news is that if your servicer ends up with extra money in your escrow account when the analysis takes place, you’ll be refunded the difference. The last thing I will tell you to be careful of is that you want to make sure you send your endorsed insurance refund check to your mortgage servicer because your homeowners insurance is paid ahead of time. If you don’t send the refund check, they’ll pay for the second policy, but you’ll end up with an escrow shortage at the end of the year. Hope this helps!

      Thanks,
      Kevin Graham

  6. We finance our home through a family member (keeping the paid interest in the family), so we pay for our homeowners insurance and property taxes separate by ourselves – I pay each in one lump sum, for property taxes in January and then insurance in June. This is our first home purchase, so I’m not sure how this normally would work, but do other’s monthly ‘escrow’ change on them yearly? I’m asking because our home insurance costs have gone up each year and I’m wondering if that’s the case for others who have a loan through a ‘normal’ lender. It makes sense that it would change for others too. But I thought I’d ask and make sure. Because if other’s stay the same year after year, then we are getting the raw end of the deal with our insurance carrier.

    1. Hi Laura:

      If your property taxes or insurance change during the year, the escrow amount for a traditional mortgage changes in the same way that it’s changing for you. I hope this helps!

      Thanks,
      Kevin Graham

  7. What’s the estimated percentage that your mortgage increases when you take off your homestead tax exception ? We live in Miami.

    1. Hi Sunny:

      That’s going to depend on your property value. According to Google, the effective tax rate in Miami is 1.27%. Also, you may not have to give up the entire exemption. According to state law, as long as it’s your primary residence, you can deduct up to $50,000 in value with the exception that $25,000 of that is subject to school taxes. Hope this helps!

      Thanks,
      Kevin Graham

    1. Hi Angel:

      Escrow is typically analyzed once a year depending on the policies of your servicer. You may actually get a check back from your mortgage company next time they do the analysis if they find more in your account then your actual tax bill. Hope this helps!

      Thanks,
      Kevin Graham

  8. My question is similar to Shelly’s. I will be homesteading my property. I want to know I feel this will decrease my payment. The home I am buying has not been Homesteaded for 4 years and I am closing before the end of 2016 so it will be eligible for Homestead in 2017.

    Sherrl

    1. If you were to receive the tax credit, it would decrease your property tax payment upfront or whether you received the credit through your refund. However, it’s possible for me to tell you that you qualify without knowing what state you’re in. If you Google, you can probably figure out the policies in your state.

  9. When can pmi be dropped? Also, I now qualify for homestead exemption; when will this be adjusted within my total payment now that my taxes are much less? I need to lower my monthly payment especially since it jumped up on me unexpectedly and I am not sure why!? Now it’s over 1000 a month!

    1. Hi Shelly:

      PMI can be dropped when you reach 20% equity. I’m going to have someone reach out regarding the other questions you have.

      Thanks,
      Kevin Graham

  10. What about PMI? It’s a rip off.It does benefit me.It’s an insurance I am paying for the mortgage company.And it is very expensive.

    1. Hi Michellin:

      You should probably talk to a mortgage banker about your possible options to remove PMI. I’m going to have someone reach out to you.

      Thanks,
      Kevin Graham

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