Understanding Property Tax Payments: Lender vs. Homeowner
Many lenders will offer to pay a homeowner’s property taxes with their mortgage payment. Sounds pretty convenient, right? It can be — but there’s a catch.
Here are a few reasons why you might want to consider paying your own taxes:
1) The bank is essentially holding your money and earning interest
Essentially the lender just creates a "tax piggy bank" on your behalf. They take 1/12th of the annual property taxes every month, and then bank these funds for when a tax bill is due.
Often, these accounts have thousands of dollars in them! Why let the bank earn interest on your money when that money could be working for you?
2) Timing issues may mean you still have to make a payment
If you purchase a home partway through the year, by the time the July or September installment is due, your “tax piggy bank” may not have enough funds to cover the bill. That means you’ll have to pay out of pocket.
This causes a lot of frustration for buyers. It’s confusing to understand why you’re paying taxes to both your lender and the city. Plus, coming up with an unexpected few thousand dollars shortly after buying a home can be a real financial strain.
3) Oftentimes the bank collects too much, or doesn't collect enough!
I've seen it happen with buyers and homeowners I’ve worked with - they’re surprised to find thousands of dollars sitting in their tax account because the lender collected more than necessary.
On the other hand, if the lender didn’t collect enough, the homeowner may be asked to make a large one-time payment to catch up. That kind of unexpected bill - often $1,000 or more - can be a real headache, especially if you weren’t prepared for it.
Credits and thank you to Jim Steffler for this information. If you’re looking for a great mortgage agent, consider reaching out to Jim!
Jim Steffler
Mortgage Agent Level 2
Dominion Lending Centres National Ltd.
TEL: 226-338-5136
EMAIL: jim@jimstefflermortgages.com
https://jimstefflermortgages.com