What Is Property Tax?
Property tax is a recurring local tax based on a property's assessed value multiplied by the rates of local taxing bodies such as the county, city and school district. It is often collected monthly through a mortgage escrow account and is one of the largest ongoing costs of owning a home.
Property Tax in plain English
Property tax is calculated from the assessed value of your property and the tax rates set by local bodies such as the county, city or township and school district.
If your mortgage has an escrow account, the servicer collects one-twelfth of the yearly bill with each payment and pays the bill when it is due.
Try it: Property Tax with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Monthly mortgage payment breakdown
What one monthly payment pays for. The loan payment is calculated; taxes, insurance and HOA dues are estimates you should replace with real quotes.
- Financing (calculated)
- $2,455
- Loan of $360,000
- Ownership costs (estimated)
- $550
- Tax, insurance, HOA
- Estimated monthly total
- $3,005
- Includes mortgage insurance
- Principal & interest$2,275
- Mortgage insurance$180
- Property tax (estimate)$400
- Homeowners insurance (estimate)$150
Show the numbers as a table
| Component | Type | Monthly | Yearly |
|---|---|---|---|
| Principal & interest | Financing (calculated) | $2,275 | $27,305 |
| Mortgage insurance | Financing (calculated) | $180 | $2,160 |
| Property tax (estimate) | Ownership (estimate) | $400 | $4,800 |
| Homeowners insurance (estimate) | Ownership (estimate) | $150 | $1,800 |
Formula
Principal & interest = Loan × r ÷ (1 − (1 + r)^−n), r = annual rate ÷ 12, n = years × 12Mortgage insurance = Loan × PMI rate ÷ 12 (conventional loan, under 20% down)Assumptions
- Fixed-rate loan; the rate stays the same for the whole term.
- Mortgage insurance applies to conventional loans with less than 20% down and stops once the loan reaches 78% of the original value.
- Property tax, insurance and HOA dues vary by location and change over time.
Why it matters
Property tax is one of the largest ongoing costs of owning a home and can differ sharply between neighbouring towns. Rising taxes are a common reason a fixed-rate mortgage payment goes up.
What it means for you
How does it affect my budget?
Check the current tax bill and millage rates before you buy.
What investors should know
Model the tax after a possible reassessment, not just the seller's bill.
Common mistakes
- Budgeting from the previous owner's bill after a sale or improvements.
- Missing the assessment appeal deadline.
- Overlooking exemptions such as homestead programs where they exist.
Compare and common questions
Property Tax: frequently asked questions
How is property tax calculated?
Assessed value times the combined tax rates of the local taxing bodies, minus any exemptions you qualify for.
Why did my property tax go up?
Because your assessment rose, tax rates increased, or an exemption ended. Your notice or bill shows which.
Is property tax included in my mortgage payment?
If you have an escrow account, yes - the servicer collects it monthly and pays the bill.
Related Terms
Where it fits
- Buying a home, Ownership: before this, Escrow Account; next, Homeowners Insurance.
More Owning Terms
Recommended next step
Estimate the bill from assessed value and local rates.
Property tax calculator →Sources and review
- What is an escrow or impound account?, Consumer Financial Protection Bureau. Supports: Escrow accounts collect and pay property taxes with the mortgage payment.
Where this applies: United States. Amounts and rules are set by local governments, associations and governing documents, and vary widely.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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