How To Deal With Property Taxes; To Wrap, Or Not To Wrap (In Your Mortgage).

So in buying my new house a year and 1/2 ago, I wasn’t aware of property taxes. And after paying them in my closing costs for the first part of the year last year, I neglected the 2nd half of the payment ending last year, and only realized it when I got the late noticed on Feb 1 when I got the mailing this year. That doesn’t seem right that it isn’t digital yet, but there are some lessons to be learned here…

So I can’t find my exact King County referral to when property tax statements are mailed out, but I found this one from down in southern Washington saying in all caps:

TAX STATEMENTS ARE SENT OUT ONCE A YEAR. Tax statements are mailed from Colfax, Washington in late February or early March.

Keep this info in mind if you buy a house after the date they send it out because you’re only going to see one copy of it from year to year! This is the part I don’t understand and have a better grasp on now. I can only assume they’re banking on late payments because my property taxes per year are almost $6,000 and if they only tell me about it once, I’ll forget a payment and have to pay the $300 of late fees when I DO decide to pay. It may only happen once, but if you’re a first time homebuyer, make sure you take note of the last sentence.

Furthermore, when I DID realize that I was late on the payment, I logged on to the website to make a payment ASAP and they put another roadblock in the way that says if you’re late on a payment, you can’t pay online, you need to go into the office; which was inconveniently located about 20 miles from my house. Well criminy people, I’m trying to give you money. You’d think that the best way to have someone pay a late payment would be over the phone or on the internet, but unfortunately, they were having neither.

On top of both of those inconveniences, when you go in, you can only pay with check or money order. As you know from my most recent poll, I only carry a credit card around, but conveniently found an old check from 3 residences ago in one of my old coats that I could use.

Hank, why don’t I just wrap my property tax in my mortgage like a normal person?

Well initially the idea was to put the money in my Emergency Fund and grow some interest on the money before having to hand it over, but clearly I didn’t remember that I needed to do that, and for convenience sake it probably would have been a good idea for that reason. However, now that I am aware of the tax and when it comes out and more importantly, when it is due, I can make note and allocate my funds properly and maybe pull 3 or 4% from my high yield savings account the $ will be sitting in.

On top of me wanting to milk the money for 3 or 4% I don’t want to wrap it in my mortgage because wrapping it in my mortgage sounds like a good idea, but all that is happening there is they’re bumping up your monthly payment in conjunction to your loan.

So for the sake of numbers you owe $100,000 on your house and your prop tax is $10,000 per year. You’re then paying $110,000 over the life of a loan and likely paying more interest on it than you need to by keeping it in your own hands. Your payment of $1000 a month becomes $1050 (or whatever you worked out) per month. Yea, it’s just all conveniently wrapped into one payment, but you could take that extra $110, put it in a high yield savings or MMA and at least crack out 3.30% right now over a year.

It’s very similar to the debate over wanting to get a tax rebate. Yes, it’s good to get a rebate, but you’re only getting it because Uncle Sam is paying you back the 0% interest loan you gave him the year before.

But my lender said it was a good idea to wrap it in my mortgage.

Well, trust your lender about as far as you can throw them for the most part. They’re in the game to turn a buck too, and if you’re not on their good list, you can find yourself subject to the “convenience” of wrapping your property tax. I think the only “convenience” is THEIR “convenience” of getting a new car on your interest that you’re giving them on YOUR dollar. They’re wrapping your property tax into the mortgage and giving you a x% higher mortgage payment that you now owe them. Keep it to yourself and put the cash to work for you, not them.

Moral of the story

If you’re conscious about your money and keep tabs on where it goes all the time, your best bang for your buck is going to come from keeping the property tax and your mortgage separate; just make sure you pay your property tax on time or you’re going to not only be dumping your the % you make letting it sit in the high yield savings account, but you’ll save yourself a lot of run around time by having to pay it in person at the office.

Photo by: J.bach, and Marco Fedele

Filed Under: adviceDebtEmergency fundfinancial educationHouseInsuranceReal EstateTaxes

  • Hank, many mortgage companies charge an extra fee if you want to handle your property taxes yourself. I think this fee probably would negate any benefit of saving property taxes yourself.

    However, it is very important for everyone to keep track of their property taxes. Mortgages are one of the reasons our state has been able to raise property taxes to criminal levels. When the tax is wrapped into the mortgage payment-mentalty people just think they have a large mortgage payment. They don’t differentiate between the two.

    Our county takes about half as much from us as King county extracts from you. If they tried to take $500 a month from me for the privledge of living in my own house, I’d seriously consider leaving the area!

    Aaron Stroud’s last blog post..The Paragraph Edition | Festival of Frugality 122

  • PT

    Hank,

    Great article. I’ve been doing it myself since I bought my first home last year. We have it going automatically into an ING sub account. The lender did charge me $300 at close not to escrow, so I won’t make this back for a couple of years. I found later that I could have asked to do my own escrow after close and avoided the fee. Bummer.

    PT’s last blog post..Current Checking and Savings Account Rates and More ING DIRECT Sign-Up Bonuses

  • I can sympathize with Town Hall issues. Ours is open only part-time M-F 8:30-4:30 and each office in the town hall closes for 1-2 hours a day AND 2 of the offices are only open 10-12 2 days a week. Talk about bueracracy. We do roll it all in but only because we don’t want to deal with the Town Hall unless absolutely necessary and I like to pay bills now instead of worrying about them. Good for you though that you have the ability to do that.

    Melissa’s last blog post..The Bug Says Save!

  • You are right. On my second house I did elect to pay my taxes myself. There is no reason to provide my money interest free to the mortgage company.

    Also, that 3.3% is going to be a lot higher in the next couple of years I bet. But we will see if I am right about that. High inflation and low interest rates don’t make sense.

    Curious Cat Investing Blog’s last blog post..Inflation is a Real Threat

  • If you think your local property taxes are bad in USA – have a look at the UK. A 3 – bed house (small by US standards) would be paying £1500 per annum (about $2900). On purchasing a house there is “stamp duty” tax – up to 5% on more expsnive houses.

    Howard aka PropertyHouse.org

    Property Editor’s last blog post..British Tourism To Lanzarote Increases 15.6%

  • @Howard – Amazing, and ugh, sorry to hear. I guess it’s really ridiculous how much money the government can squeeze us for when it comes to our housing…
    Thanks for stopping by and for the info!

  • I think it should be wrapped in your mortgage. Simplifies things.