Does your mortgage payment include a portion for property taxes? If you have a mortgage and your bank is making the property tax payments, you may have a little stash of money in your mortgage tax account. Why not take a few minutes to check it out and get that cash into your hands instead of the banks?
How Mortgage Tax Accounts Work
Property taxes are a cost of owning any type of property, whether it’s a home, condo, cottage etc. When you get a mortgage, your financial institution wants to make sure the property taxes are getting paid. There are two ways the tax payments can be made:
- By directly making monthly or annual payments to the city/town your property is located in, or
- Your financial institution sets up a tax payment as part of your regular mortgage payment.
We’re dealing with option 2. in this article. When your financial institution takes tax payments, they set up a mortgage tax account to hold the money until your taxes come due. Once they receive a notice from your city, they send the money to pay the balance of the tax bill. So your mortgage tax account is just like a little savings account with money put aside for the annual taxes. It even earns a little bit of interest – very little.
Most of the time, the amount you pay for taxes with your mortgage payment is pretty close to what your annual tax bill is. For example, if your property taxes are $2400 per year, your mortgage payment would have a tax payment built in of about $220 per month. The reason the payment is a little higher is because a percentage is built in to allow for increases in property taxes.
But sometimes, a higher amount is taken with tax payments because of adjustments at the time of purchase. When that happens, you end up with an excess balance in your tax account. It’s more common than you think it would be.
Extra Money in a Tax Account
The reason extra money builds up in tax accounts is because of the timing of the tax billing and the payments. A city will charge taxes for the fiscal year, whereas a financial institution will pay taxes mid-year. There’s also adjustments at time of purchase which factor in. The calculations are complicated and most bankers can’t even explain how it works. Let me just say this, the result is that often people end up making higher tax payments than they need to. When this happens, a balance accumulates in your tax account.
How can you find out if there’s money in your tax account? Have a look at your annual mortgage statement. There is a line that shows the tax account balance. You can also see what portion of your mortgage payment is for property taxes. If you don’t have a paper statement, you can view it online. Or, contact the call center and they can assist you.
Your tax account balance as of the end of the year should approximately equal your annual property taxes. If your tax account balance is $3500 and your annual taxes are $2400, then you have extra money in your mortgage tax account. If this is this case for you, call up your bank and ask to withdraw it because there’s no sense having it sit there. They will make sure there is enough to pay the annual bill and lower your tax payment if necessary. It’s a bit like finding money in an old coat pocket but usually a lot more than just $20.00!
So go ahead. Check out your tax account and comment if you’ve found a little stash of cash.