Property Taxes and Your Mortgage Escrow Account: How They Work Together
If you have a mortgage on your home, there’s a good chance you’re not paying your property taxes directly — instead, your mortgage servicer is collecting funds from you each month and paying the tax bill on your behalf through an escrow account. Here’s how this works, and what it means for you. For expert advice and loan quotes related to property taxes, contact American Finance and Investment Co., Inc. (AFIC).
What Is an Escrow Account?
An escrow account (sometimes called an impound account) is a fund held by your mortgage servicer that’s used to pay certain recurring property-related expenses on your behalf — most commonly property taxes and homeowners insurance. Rather than paying these bills yourself when they’re due, you pay a portion of the estimated annual cost as part of your monthly mortgage payment.
How the Monthly Amount Is Calculated
Your servicer generally estimates your annual property tax bill (based on your most recent tax information) and your annual insurance premium, adds these together, and divides by 12. This monthly amount is added to your principal and interest payment, making up your total monthly mortgage payment (sometimes abbreviated as ‘PITI’ — principal, interest, taxes, insurance).
Your Servicer Pays the Tax Bill When Due
As discussed in our property tax calendar, property taxes are generally due by January 31st. If you have an escrow account, your servicer is generally responsible for paying this bill on time using the funds accumulated in your escrow account — you typically don’t need to take any separate action.
Is Escrow Required?
Escrow is very common but not universal. Depending on your loan type, down payment, lender requirements, and other factors, escrow might be required, optional, or potentially removable after meeting certain conditions (like reaching a certain amount of equity). If you’re unsure about your specific loan’s escrow requirements, your mortgage servicer can clarify.
What If You Don’t Have Escrow?
If your loan doesn’t include escrow (or you’ve had it removed), you are responsible for paying property taxes directly to the tax office by the deadline — this is sometimes called paying taxes ‘outside of escrow.’ In this case, the delinquency consequences we’ve discussed elsewhere apply directly to you if payment isn’t made on time.
Why Your Monthly Payment Can Change Even With a Fixed-Rate Mortgage
This is a common point of confusion: even with a fixed interest rate (meaning your principal and interest payment doesn’t change), your total monthly payment can change if your escrowed amounts (taxes and/or insurance) change. As discussed in our articles on why values increase and how rates are set, your property tax amount can change from year to year based on both your appraised value and tax rates — and your escrow payment adjusts to reflect this.
Annual Escrow Analysis
Servicers generally perform an annual review (sometimes called an escrow analysis) comparing what was collected to what was actually paid out, and adjusting future monthly payments based on updated estimates — this is the mechanism through which property tax changes get reflected in your monthly payment over time.
What If You Protest Your Value or Get an Exemption?
If you successfully protest your appraised value or apply for an exemption that reduces your tax bill, this should eventually be reflected in your escrow analysis and monthly payment — though there can be a lag between when a tax change takes effect and when your servicer’s escrow calculations catch up, since servicers generally work from the tax bills they receive.
Manage Your Property Taxes with AFIC
Whether your taxes are paid through escrow or directly by you, understanding this relationship helps you make sense of your overall housing costs — and if you don’t have a mortgage (or your situation doesn’t involve escrow) and are managing property taxes directly, AFIC can help if a delinquent balance arises.
American Finance & Investment Co., Inc. (AFIC) has helped Texas property owners understand and manage their property tax obligations for over 80 years. See if you qualify for a property tax loan.
Frequently Asked Questions
A fund held by your mortgage servicer to pay property taxes and homeowners insurance on your behalf, funded through a portion of your monthly mortgage payment.
Generally no — your servicer pays the tax bill from your escrow account when it’s due.
This is often due to a change in your escrowed amounts — typically property taxes and/or insurance — reflected through an annual escrow analysis.
No — it’s common but not universal; requirements depend on loan type and other factors, and it can sometimes be waived or removed.
Potentially, once your servicer’s escrow analysis reflects the updated tax amount — though there can be a lag.
