The "value" of your home can be determined for different purposes. The two main measurements are the property tax value and the fair market value. If you are refinancing your home, the value is based on the fair market value, whereas your property tax payments are based on the assessed tax value. Depending on where you live and the tax assessment procedures your county follows, the tax assessed value and fair market value for refinancing may be similar or drastically different.
Tax Assessed Value
Across the United States counties and municipalities impose property taxes on homeowners. The proceeds from the taxes are used to fund services such as public safety and education. While each jurisdiction has its own method for calculating taxes, the majority apply a base tax rate to the assessed value of your property. A tax assessor determines the value by researching information about the home including previous sales and the sales of other comparable homes in the area. Additionally, the assessor might physically inspect the property. However, the value is usually just estimated without a visit to the property.
At regular intervals, your property's tax value will be reassessed. This can either cause an increase or decrease -- usually an increase -- in your property taxes. Just as the tax rates differ between jurisdictions, so does the frequency of reassessment. Some places do these yearly, while others do them every few years. In the event that your reassessment is much higher than you believe to be valid, many tax authorities have an appeals system. Going through the appeals process may result in a lower tax bill. Additionally, there may be other exemptions applicable to your situation that will help reduce your liability.
Refinancing your mortgage loan can provide many benefits such as lower interest rates, better terms or additional cash. If you opt to refinance, the lender will likely require an appraisal. The appraised value will be used to determine how much -- if any -- equity has accrued since obtaining the original mortgage and what the fair market value of the property is. Depending on your credit score and other factors, you may be eligible to borrow more than you owe on the original loan by using the built up equity with the same refinance loan. This is different than a home equity loan and is usually called a cash-out refinance. The additional funds can be used to pay off other bills, make home improvements or cover other expenses.
For your refinance loan, the lender hires an independent appraiser to analyze the property. The appraiser must be certified or licensed by the state and should also be familiar with homes located in the same area. The appraiser generally comes to the property and takes a complete tour. Building materials, square footage, improvements and data from comparable homes in the area are considered in the appraised value of your home.