Property taxes are collected monthly through your escrow account and can significantly affect your total mortgage payment. Here is how they work, what they cost, and how to manage increases.
How Property Taxes Work With a Mortgage
Your annual property tax bill is divided into 12 equal monthly installments, which your servicer collects as part of your PITI payment. These funds accumulate in your escrow account until taxes are due — typically twice a year (or annually, depending on your municipality). The servicer then pays the tax authority directly.
Property Tax Rates by State
| State | Effective Rate | Annual Tax ($350K home) |
|---|---|---|
| Hawaii | 0.27% | $945 |
| Alabama | 0.37% | $1,295 |
| Colorado | 0.52% | $1,820 |
| California | 0.73% | $2,555 |
| National Average | 1.10% | $3,850 |
| Texas | 1.60% | $5,600 |
| Illinois | 2.08% | $7,280 |
| New Jersey | 2.23% | $7,805 |
Escrow Shortage from Tax Increases
Property taxes can increase annually as local assessments rise. When taxes increase, your servicer adjusts your monthly escrow payment upward at the annual escrow analysis. If taxes increased more than expected during the year, you may owe a shortage — typically spread over 12 months in your next year's payments.
How to Appeal Your Property Tax Assessment
- Review your assessment notice — note the assessed value and tax rate
- Compare to recent sales of similar homes in your neighborhood
- File an appeal with your local assessor's office (annual deadline varies)
- Submit comparable sales evidence
- Attend the hearing or submit written appeal
Successful appeals can reduce your assessed value and annual tax bill by thousands. Many jurisdictions allow you to appeal annually.
Frequently Asked Questions
Property taxes are added to your monthly mortgage payment through your escrow account. The annual property tax amount is divided by 12 and added to your principal and interest payment each month. On a $350,000 home with 1.10% tax rate, that's $3,850/year = $321/month added to your payment. In high-tax states like New Jersey or Illinois, property taxes can add $600–$800+/month to the payment.
Possibly — if you have 20%+ equity and your lender allows escrow waivers, you can manage property taxes and insurance yourself. You'll pay a waiver fee (typically 0.25% of loan at origination) and take responsibility for making tax payments on time. Government-backed loans (FHA, VA, USDA) generally require escrow throughout the loan term.