Does refinancing a mortgage affect your property taxes?
Key takeaways
- Refinancing a mortgage does not directly affect property taxes, but the terms of the new mortgage could impact how you pay them.
- Consider the timing of your refinance in relation to when your property taxes are due, as you might need to settle them at closing.
- A cash-out refinance could indirectly impact your property tax bill if you used the funds for substantial upgrades that increased your home’s value.
Many factors influence how much property tax you pay as a homeowner, including the rates set by your municipality and the assessed value of your home. Generally, refinancing your mortgage does not impact your property taxes outright. Here’s what to know.
How does refinancing a mortgage affect property taxes?
Refinancing your mortgage does not impact your property taxes, at least not directly. However, there could be ramifications depending on type of refinance you do:
- A straightforward rate-and-term refinance, in which you simply swap your current mortgage for a new one at a new rate and term, doesn’t typically trigger any property tax changes.
- A cash-out refinance can potentially impact your property taxes if you’re using the cash for a remodel. Those upgrades could trigger a reassessment that raises your home’s assessed value and property tax liability.
In addition, a new mortgage could come with new terms — especially if it’s with a different lender — that can affect how you set aside cash from your budget for property taxes, says CPA Lisa Greene-Lewis, senior communications manager at Intuit.
“Homeowners need to consider whether the new loan will require them to impound their property taxes — meaning pay them every month with the loan payment — or whether they will pay them twice a year outside of the loan,” Greene-Lewis says. “This is a consideration as it may depend on your finances and your stream of income. Some people prefer to pay their property taxes twice a year instead of having that bump out of their pocket every month.”
If you’re picking a new lender, though, that lender might have different escrow requirements, and you might need to fund the escrow account before the old lender refunds the balance. Some lenders don’t give borrowers the option to self-pay property taxes, either.
Does a refinance appraisal affect property tax?
Property taxes are based on the home’s assessed value, not the appraised value. The appraised value is determined by a professional appraiser — not the local tax authority — usually when a borrower applies for a mortgage to buy a home or refinance.
Paying property taxes when refinancing
Similar to when you closed the original mortgage, refinancing to a new mortgage involves budgeting for closing costs, including any property taxes. Make sure you understand:
- Where you are in the tax year: Depending on where you live and the timing of your closing, your property taxes might have already been covered. For example, in Illinois, property taxes are typically due on June 1 and September 1. In Arizona, the due dates are October 1 and March 1. If you currently escrow these payments with your lender or servicer, contact them to learn if they’ve already made the payment for the year. If you pay taxes yourself, verify this with your local tax authority.
- How much you might need to pay: If your new lender requires you to escrow the tax payments, you’ll likely be responsible for prepaid property taxes at closing. The amount is based on your area’s tax due dates.
Next steps for refinancing your mortgage
If you’re considering refinancing a mortgage, shop around to find the most competitive interest rate. Consider how long you intend to be in the home — our refinance breakeven calculator can help you pinpoint when you’ll realize savings.
