My Tax Assessment Was Lowered: How Will That Affect My Mortgage?
If the local property tax agency has lowered the assessment on your house, that might eventually translate into a lower monthly mortgage payment. However, it's important to understand that what's affected isn't the mortgage itself, but the tax bill, which many homeowners pay as part of their monthly payment.
You tax assessment is an estimate of the value of your home by your local government, usually the county. The government uses that estimate to set your property taxes. Assessments can rise, fall, or stay the same from year to year. The assessed value of the house has no direct effect on your mortgage, which is the loan you took out to buy the property.
The typical monthly mortgage payment actually covers more than just the mortgage. A portion of the payment usually goes toward property taxes. The lender collects a portion of the annual tax bill each month, holds the money in an escrow account, and then pays the taxes when they're due. Lenders don't do this just for borrowers' convenience. By making sure the taxes are paid, the lender avoids tax liens on the property, thus protecting its own stake in the house.
Payment in Arrears
If you're paying your property taxes through escrow, a reduction in your tax assessment should eventually reduce your monthly payment. It might take awhile, though. Property taxes in many states are paid "in arrears," meaning they are paid a year after they are assessed. If your assessment was lowered this year, the taxes based on the new assessment won't be billed until next year. This year's tax bill is based on last year's assessment.
A lowered assessment also might not affect your mortgage payment for a while if the lender isn't taking the lower taxes into account when calculating your monthly payment. Lenders typically review homeowners' escrow accounts once a year to make sure they're contributing the right amount each month. If there isn't enough coming in, the lender raises the escrow portion of your payment; if too much is coming in, the lender lowers your escrow contribution. The lender might wait until the lower tax bill actually arrives -- the year after your assessment goes down -- before adjusting your contribution.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.