Property Taxes Explained: What Homeowners Actually Need to Know
If you’ve ever opened a property tax notice and thought, “Why does this feel so complicated?” you’re not alone.
Property taxes are one of the most misunderstood parts of homeownership. They aren’t intuitive, they don’t work the same way everywhere, and changes often show up with very little explanation. The good news? Most of the time, what you’re seeing is normal and manageable.
Let’s break it down in plain English.
Property taxes are local taxes assessed by your county or municipality. They help fund things like schools, roads and infrastructure, fire and police departments, and other local services and community improvements.
They are not set by your lender and not controlled by your mortgage company.
While the exact formula varies by location, property taxes generally come down to two components.
First is your home’s assessed value, which is determined by the county assessor.
Second is the local tax rate, often referred to as a mill levy.
Even if your home’s market value hasn’t changed much, your taxes can still increase due to reassessments, rate changes, or shifts in local budgets.
This is where most homeowners feel caught off guard.
Property taxes can increase because the county completed a new assessment cycle, local tax rates or mill levies changed, voter-approved measures added funding, prior assessments were temporarily reduced or capped, or adjustments occurred after a home sale.
An important note: a tax increase does not automatically mean something went wrong. In most cases, it reflects broader local changes, not a mistake on your loan.
If you have an escrow account, and many homeowners do, your servicer collects a portion of your property taxes each month as part of your mortgage payment.
When taxes change, your servicer pays the new tax bill on your behalf, reviews your escrow account annually, and adjusts your monthly payment if needed to reflect the updated tax amount.
This process is designed to prevent homeowners from needing to pay large lump-sum tax bills out of pocket.
An escrow shortage happens when taxes or insurance cost more than what was originally collected.
When this occurs, your servicer still pays the tax bill on time, the escrow account is recalculated, and your future payments are adjusted so the account can catch up.
Escrow shortages are very common, especially after reassessments or tax increases. They’re an adjustment, not a penalty.
Typically, the shortage is spread across future payments. In many cases, homeowners may be able to pay it sooner if they prefer, depending on the servicer’s process.
Let’s clear up a few things we hear all the time.
“My lender raised my taxes.”
Not possible. Taxes are set by local authorities.
“My payment increase means I’m in trouble.”
Usually not. It often reflects updated tax numbers.
“This means my home value skyrocketed.”
Not necessarily. Rates and assessments can change independently.
“Escrow messed something up.”
Rarely. Most adjustments are routine and regulated.
Knowing who to call can save a lot of frustration.
Call your lender or servicer if you have questions about your escrow analysis, your monthly payment changed, or you want help understanding how taxes affect your payment.
Call your county assessor if you believe your assessed value is incorrect, want to understand how your tax bill was calculated, or are considering appealing your assessment.
Property taxes are a normal part of owning real estate. While they can change, they’re rarely a sign that something is wrong.
If your payment recently increased or you received an escrow notice you don’t understand, a quick review can bring a lot of clarity and peace of mind. You don’t have to figure it out alone.
Understanding what’s happening and why makes all the difference.
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