One of the best ways to lower your monthly payment and possibly get a better interest rate is to refinance your mortgage. Doing so will not change your property taxes unless the mortgage company sees that your property values are likely to skyrocket in the near future. You can use a mortgage calculator to determine exactly what you can expect to pay in property taxes on your home’s assessed value.
Refinancing won’t change your property taxes in itself, but if your tax rates are increasing anyway, your mortgage company may increase your monthly payment to cover the higher amount.
Will Refinancing Affect Property Taxes?
When you buy your house, your mortgage company estimates what your property taxes will be and adds that amount to your payments. While property taxes are between you and the government, your lender remits the money on your behalf. When you refinance, the lender is only trying to determine how much to set aside in an escrow account until it’s time to pay your property tax bill.
If you refinance your mortgage, your mortgage company shouldn’t need to adjust your property tax rate. If your home’s value is $300,000 and you have a 3 percent tax rate, your assessment will be $9,000. By taking money out each month, your mortgage company can help you pay this without you dealing with a big tax bill once a year, but if your taxes increase, you may get a bill if enough wasn’t withheld.
Refinancing to Remodel
If you’re refinancing to make changes to your home, you could see an increase in your property taxes based solely on the work you do. If you add a new bathroom onto your home, for instance, that will increase the square footage and, with it, the assessed value of your home.
Since your assessed value is fairly predictable, you can use a mortgage calculator to determine how much you can expect to pay. You’ll just need to know the property tax rate for your area, as well as what your current value is, to estimate what your new amount would be. If your tax rate is 3 percent and your value is $300,000, an increase in value of $30,000 would bring your value up to $330,000, or $9,900 in taxes.
Appraisals and Property Taxes
Although you won’t find that refinancing affects property taxes directly, you may find that it alerts you to an increase coming down the pike. A property appraisal is usually requested as part of the refinancing process and, through this, you may suddenly realize that your house’s value has shot up. If home values have gone up in recent years, your property value may come in higher, but that won’t be reported to your property tax assessor.
What does directly affect your property taxes is what happens when the local property assessor determines the value of your property. This happens between every one and five years, depending on how your local tax authorities handle it. You can use a mortgage calculator to try to predict this, but it’s based on something called the mill levy, which is the calculation the local authorities use to determine the value of properties.
When to Refinance
Although you may not find that refinancing affects property taxes, property taxes may prompt your decision to refinance. If you’ve received one of those postcards in the mail letting you know your taxes are increasing, refinancing could be a way to find the extra money.
There are other reasons to refinance a mortgage when property values increase. You can do something called a cash-out refinance, which allows you to take the extra money your home has amassed in cash. This is a great way to offset the extra you’ll pay in property taxes, but it also can be useful for paying off debts or making a couple of upgrades to the interior of your house.
- PennyMac Loan Services: How Refinancing Affects Real Estate Taxes
- Property Tax
- Nerdwallet: Should I Pay for Home Renovations by Refinancing?
- Searchlight Crusade: Refinancing Does Not Cause Your Property Taxes to Go Up
- Credit Karma: When Is Refinancing a Mortgage Worth It?
- Corporate Finance Institute. "Ad Valorem Tax." Accessed Feb. 4, 2020.
- Tax Foundation. "Property Taxes." Accessed Feb. 4, 2020.
- Internal Revenue Service. "General Instructions for Certain Information Returns." Accessed Feb. 4, 2020.
- Tax Foundation. "Tangible Personal Property." Accessed Feb. 4, 2020.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.