Is Real Estate Tax Included in My Mortgage?

Yes, property taxes are commonly included in your monthly mortgage payment. Lenders often use an escrow account to collect a portion of your annual property taxes, along with homeowners’ insurance, and pay those amounts on your behalf. This helps make sure taxes are paid on time. However, you may be able to handle property taxes separately if you have at least 20% equity in your home.

Is My Real Estate Tax Included in the Mortgage?

Yes, property taxes are often included in your monthly mortgage payment. Many lenders use an escrow account to collect part of your yearly property taxes, along with homeowners’ insurance, and pay them on your behalf. This helps make sure taxes are paid on time. In some cases, you may be able to pay property taxes separately if you have at least 20% equity in your home.

How Are Property Taxes Handled in a Mortgage Payment

Escrow Accounts: Your lender calculates your yearly property tax bill, divides it by 12, and includes that amount in your monthly mortgage payment.
Verification: Review your mortgage statement, closing paperwork, or contact your lender to confirm whether you have an escrow account.
If Not Included: If property taxes are not included, which is often allowed with larger down payments or at least 20% equity, you must pay them directly to your local tax authority.
If You Pay Off the Loan: Once your mortgage is fully paid off, you become responsible for paying property taxes on your own.

Tax rates, escrow requirements, and lender policies can change over time, so it is important to check with your specific lender about the details of your account. If you have questions about property taxes, escrow disputes, mortgage terms, or homeownership issues, speaking with a real estate lawyer may also be helpful.

What Happens If Property Taxes Are Not Included in Your Mortgage

If property taxes are not included in your mortgage payment, meaning you do not have an escrow account, you are responsible for paying them directly to your local tax office. These payments are often made annually or semi-annually. You should budget and save for these costs on your own to avoid penalties, interest charges, tax liens, or foreclosure.

Direct Payments: You will receive a property tax bill directly from your local tax assessor or tax office.
Budgeting: Since your lender is not collecting monthly tax payments, you should save money each month to cover your future tax bill.
Due Dates: Missing payment deadlines can lead to penalties, interest, tax liens, or even foreclosure in serious cases.
Verification: Check with your local tax office to confirm that your property tax payments have been received and processed.

If you made a large down payment or have at least 20% equity in your home, your lender may allow you to handle property taxes without an escrow account.

How Do Property Taxes and Mortgages Work Together

Below is a breakdown of how property taxes are handled in connection with your mortgage.

How It Works (Escrow): Lenders estimate your annual property tax bill, divide it into 12 monthly portions, and include that amount in your mortgage payment through an escrow account.
Benefits: This method helps ensure property taxes are paid on time and makes monthly budgeting more predictable.
Exceptions (Escrow Waivers): If you have 20% or more equity in your home, you may qualify to waive escrow and pay property taxes directly.
What If It’s Not Included: If your mortgage does not include escrow, you are responsible for paying property taxes directly to the local tax authority.
After Paying Off Your Mortgage: Once your loan is fully paid, you are responsible for paying property taxes on your own.
If You Miss Payments: If your escrow account does not have enough funds to cover taxes, you may owe a lump sum or see an increase in your future monthly payments.

If you are unsure how your mortgage handles property taxes or are dealing with escrow or tax issues, consider speaking with a real estate or tax attorney. A qualified lawyer can review your mortgage terms and explain your rights and responsibilities under state and local property tax laws.

What Are the Components of a Monthly Mortgage Payment (PITI)

A monthly mortgage payment is commonly referred to as PITI, which stands for Principal, Interest, Taxes, and Insurance. When property taxes are included in your mortgage payment, they are typically collected through an escrow account and paid to the local government on your behalf.

Components of a PITI Mortgage Payment

Principal: The portion of your payment that reduces the remaining balance of your loan.
Interest: The cost a lender charges for borrowing money.
Taxes (Property Taxes): Your annual property tax bill is divided into monthly payments, and, if escrow is required, the lender collects them.
Insurance (Homeowners Insurance): Premiums that protect your home against covered risks such as fire, theft, or damage.

Additional Costs That May Be Included

Private Mortgage Insurance (PMI): Often required if your down payment is less than 20%.
Flood or Specialty Insurance: Required if your property is located in a designated high-risk area.
Homeowners Association (HOA) Fees: In some cases, these may be collected with your mortgage payment.

When property taxes are included, the lender estimates your yearly tax amount, divides it by 12, and adds that portion to your monthly escrow payment to help ensure taxes are paid on time.

Paying Property Taxes in Illinois

For many first-time homeowners, paying property taxes is a completely new experience. Property taxes are collected by local governments—typically counties—and fund vital public services, most notably public school districts.

Key Details About Illinois Property Taxes:

Based on Assessed Value: In most Illinois counties, real property is assessed at 33.333% of its fair market value (excluding farmland and farm buildings).

Installment Payments: Property taxes are typically due in two installments:
- June 1
- September 1
Cook County Exception: Requires 55% of the previous year’s taxes in the first installment, with the balance due in the second.

Failure to pay property taxes can result in a lien being placed on your home, which could eventually lead to a tax sale. For residential properties with 6 or fewer units, owners typically have 2.5 years to redeem the property by paying the overdue amount, plus penalties and interest.

How Escrow Accounts Work in Mortgage Payments

An escrow account is a separate account that your mortgage lender uses to pay property-related expenses on your behalf, including property taxes, homeowners insurance, and sometimes private mortgage insurance (PMI). When you make a monthly mortgage payment, part of that amount is deposited into this escrow account.

Each year, the lender estimates your property tax and insurance costs, divides the total by 12, and includes this in your monthly mortgage payment. If your actual tax bill increases, your escrow account may fall short, resulting in a temporary escrow shortage (explained more below).

Initial Escrow Deposit

At closing, you may be required to make a large upfront deposit into your escrow account—often 2 to 6 months’ worth of estimated taxes and insurance—to ensure that the account has a sufficient balance to cover the first year’s bills.

Waiving Escrow

Some homeowners may qualify to waive escrow requirements and pay taxes and insurance directly. However, lenders usually allow this only if:

Your loan-to-value (LTV) ratio is below 80% (meaning you have at least 20% equity),
You have an excellent credit history,
And you’ve consistently made on-time payments.

Be cautious, though—opting out of escrow puts the burden of tracking and paying taxes entirely on you, and late payments can lead to serious legal consequences.

Differentiating Between Escrow Types

There are two main types of escrow in real estate:

1. Closing Escrow (Transaction Escrow)

This is a temporary account used during the home purchase process. It holds funds (such as earnest money) and important documents until all parties meet their contractual obligations. Once the sale closes, this escrow account is closed.

2. Mortgage Escrow (Ongoing Account)

This is an ongoing account used throughout the life of the loan. It manages recurring expenses like property taxes and insurance premiums. Your lender maintains this account and makes payments on your behalf as they come due.

How Property Tax Increases Lead to Escrow Shortages

When your property tax bill increases, your lender still needs to pay it in full to the county on your behalf. If your escrow account doesn’t have enough to cover the new amount, you’ll have what’s called an escrow shortage.

To fix this, lenders usually:

Pay the full amount to the county (to avoid penalties), and
Either bill you for the shortage in a lump sum, or
Spread the shortage over the next 12 mortgage payments, increasing your monthly cost.

It’s a good idea to regularly monitor your escrow account statements, especially after a property reassessment or local tax rate hike.

Pros and Cons of Including Property Taxes in Mortgage Payments

Pros	Cons
Simplifies budgeting – one payment covers multiple bills Reduces the risk of missing tax deadlines and incurring penalties Required by most lenders (no choice for many borrowers) Lenders handle all payments directly to taxing authorities	Less control over timing of tax payments Monthly payments can fluctuate with tax/insurance changes Large upfront escrow deposits at closing May delay refunds if overestimated

If you’re the type who values convenience and security over micromanaging every payment, escrow is a smart tool. However, if you’re financially disciplined and meet lender criteria, managing taxes on your own can offer more flexibility.

What Happens If You Don’t Pay Property Taxes?

Failure to pay property taxes has serious legal and financial consequences, including:

Tax lien placement on your property,
Accrual of interest and penalties, often at high rates,
Property tax sale where the county auctions your home,
Redemption deadlines—in Illinois, homeowners may have up to 2.5 years to redeem residential property (six units or fewer) after the tax sale by paying all back taxes plus penalties and fees.

Even if your lender doesn’t escrow taxes, counties will still come after your property—not your lender—so staying current is essential to protect your home.

Why Does My Lender Require Monthly Tax Payments?

Private mortgage lenders are not obligated to include property taxes in their monthly payments, but most do so to maintain uniformity with major industry leaders like the Federal Housing Authority.

The most important reason lenders collect property taxes each month is to prevent foreclosure if the owner fails to pay property taxes. If the property is foreclosed upon, then the lender—rather than the homeowner—must pay off the lien before reselling.

If your mortgage lender collects property taxes along with your mortgage payments, it deposits the tax funds into an escrow account. Your monthly property tax payment is based on your estimated annual tax amount divided by twelve.

If this estimate is too high, then the excess is returned to you; conversely, if you owe more, your lender may require a payment to cover the deficit or raise future monthly payments.

In some circumstances, you may be able to pay off your property taxes independently of your lender. Normally, lenders will only permit this if the loan-to-value ratio is low, or, in other words, your financial risk aspect is low.

Why Legal Guidance Matters for Property Taxes and Mortgages

Understanding how property taxes are handled in your mortgage is important, especially if you are a first-time homebuyer navigating loan terms. Escrow requirements, PMI obligations, and insurance add-ons can affect your monthly payment and long-term financial planning. Misunderstanding these terms may lead to unexpected costs or payment increases.

A real estate lawyer can review your mortgage documents, explain escrow provisions, and help you understand your rights and responsibilities before closing or refinancing. Having legal guidance can provide clarity when evaluating loan terms or resolving property tax disputes.

Get Legal Help for Property Tax and Mortgage Questions

If you have questions about property taxes in your mortgage payment, consider speaking with a real estate lawyer. A lawyer can review your loan documents and explain escrow requirements. Clear guidance can help you avoid unexpected costs.

Whether you are a first-time homebuyer or refinancing, understanding your mortgage terms is essential. Legal support can clarify your rights and responsibilities. Taking action now can help you make informed financial decisions.