Property tax
An annual tax a local government charges on your home's assessed value, usually collected monthly into escrow as part of your mortgage payment.
What does property tax mean?
Property tax funds local services — schools, roads, emergency response — and is set as a percentage of your home's assessed value, which varies widely by state and county. Most lenders collect one-twelfth of the annual bill inside each monthly payment and hold it in escrow, then pay the tax when it is due. Because assessments and rates change, your payment can rise even on a fixed-rate loan.
How your bill is calculated
Your local assessor sets an assessed value for the home, which may be a percentage of market value. The tax rate (often quoted as a millage rate — dollars per $1,000 of assessed value) is set by the county, city, school district and other taxing bodies, and the bill is the product of the two, less any exemptions such as a homestead exemption.
Because assessments are updated periodically, a purchase can trigger a reassessment at the new price — so the seller’s current tax bill is not always a good guide to yours.
The same home, very different taxes
Effective property-tax rates vary more than almost any other housing cost. On a $400,000 home:
| Effective rate | Example | Annual tax | Monthly |
|---|---|---|---|
| 0.24% | Hawaii (lowest state) | $960 | $80 |
| 0.91% | U.S. median | $3,640 | $303 |
| 2.17% | Illinois (highest state) | $8,680 | $723 |
Rates are medians for homeowners with a mortgage (Census Bureau American Community Survey). Compare every state in the mortgage calculator with taxes and insurance.
Frequently asked
Why did my property tax go up?
Either your home’s assessed value rose or the local tax rate did. Because the tax is collected into escrow and paid on your behalf, an increase raises the escrow part of your monthly payment even on a fixed-rate loan.
Are property taxes included in my mortgage payment?
Usually yes. Most lenders collect one-twelfth of your annual property tax in each payment and hold it in escrow, then pay the bill when due — which is why a full payment is higher than principal and interest alone.
Related terms
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