By Katelyn Mayer, Realtor
If you’re a homeowner—or thinking about becoming one—understanding how property taxes are paid can save you stress and help you manage your budget better. One of the most common questions I get from clients is: “How does my lender pay my property taxes, and what is this escrow thing all about?”
Let’s break it down.
What Is an Escrow Account?
When you buy a home with a mortgage, your lender often requires an escrow account. This is basically a special savings account that holds money collected each month from you to pay for certain expenses—most commonly, property taxes and homeowners insurance. Instead of paying your tax bill in one lump sum once or twice a year, your lender collects a bit every month and pays the taxing authority on your behalf.
This system can make budgeting easier, so you don’t have to worry about coming up with thousands of dollars all at once.
How Does It Work?
Let’s say your annual property tax bill is $6,000. Your lender will divide that by 12 months and add $500 to your mortgage payment each month. That money goes into your escrow account, and when the tax bill is due, your lender pays it directly.
Keep in mind, lenders estimate your monthly escrow based on last year’s taxes and adjust it if your taxes go up or down.
What Happens If Taxes Change?
Property taxes aren’t set in stone. They can increase if your home is reassessed or if the local tax rate changes. Sometimes, taxes go down too—maybe you successfully appealed your assessment.
If taxes change, your lender will do an escrow analysis once a year. They’ll look at how much money was collected and how much was paid out. If there’s a surplus (extra money), you might get a refund, or it could reduce your next year’s payments. If there’s a shortage, you may need to pay the difference or have it spread out over the coming months.
How Does This Affect Your Mortgage Payment?
Your monthly mortgage payment is usually made up of four parts:
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Principal (paying down your loan)
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Interest (the cost of borrowing)
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Taxes (collected via escrow)
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Insurance (also often collected via escrow)
When your property taxes change, the portion of your payment going into escrow changes too, so your total monthly payment will adjust accordingly.
Why Does This Matter?
Knowing how escrow works means you can:
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Budget more effectively throughout the year
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Understand why your mortgage payment might change
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Avoid surprises come tax season
As your realtor, I want you to feel confident and informed at every step of your homeownership journey. If you have questions about your mortgage, escrow, or property taxes—or if you’re ready to find your next home—feel free to reach out!
About Katelyn Mayer
I’m passionate about helping buyers and sellers in Pennsylvania navigate the real estate market with clarity and confidence. Whether you’re a first-time buyer or a seasoned investor, I’m here to guide you every step of the way.
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