Property Tax
An annual tax levied by local governments on real estate, based on the property's assessed value.
Property taxes fund schools, local infrastructure, public safety, and other municipal services. They're calculated by multiplying the assessed value of the property by the local tax rate, often called a mill rate or millage. Both assessment methodology and rates vary widely by state and county.
Lenders escrow property taxes by default, they collect 1/12 of the annual amount with each mortgage payment and pay the tax bill when due. This protects the lender (unpaid taxes become a senior lien) and smooths the lumpy annual bill into manageable monthly amounts for the borrower.
Property tax assessments change periodically. Many jurisdictions reassess at sale, which can mean a notable bump in the year after purchase if the prior owner had owned for a long time. Always research the assessment policy in your target area before buying so you can budget accurately.
Related terms
Other terms you'll see alongside Property Tax
A lender-managed account that holds funds for property taxes and homeowner's insurance, paid in monthly with your mortgage.
The four components that make up a typical fully-escrowed monthly mortgage payment.
The most probable price a property would bring in an arm's-length sale between a willing buyer and willing seller.
Property insurance that covers losses to the dwelling, personal belongings, and liability, required by mortgage lenders.
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