When it comes to paying property tax, there's two options but that first bill can sometimes be confusing.
Pay Yourself
Contact your municipality/town to arrange payment of your property taxes directly. Typically the invoice will be sent out twice per year (spring and fall), and at that time half of the year's total bill will be due. However, some municipalities may allow the homeowner to pay property tax in installments, through a monthly or biweekly direct debit from your bank account or on a credit card. This may be a more convenient option to help offset two large bills arriving throughout the year.
Pay With Mortgage Payments
Some lenders give the option for your property taxes to be collected by them in addition to your mortgage payment and the property taxes will be paid on your behalf by the lender. In this situation, you'll still receive the invoices twice per year but it's more of a formality to advise you on the cost of your property taxes. Most often the invoice will indicate that it's been forwarded to your lender and you're receiving it for your records.
Lender Policies
- Most lenders offer the option to pay the property taxes yourself or have them collected with your mortgage and paid on your behalf
- Some lenders require property taxes to be collected with the mortgage payment, especially for first time home buyers
- There are some lenders that do not offer the option to pay the property taxes with your mortgage payment and in this case you must make arrangements directly with the municipality
- HELOC Mortgages (Home Equity Line of Credit) will not have the option for property taxes to be paid with the mortgage payment, the homeowner will pay the property tax themselves
Advantages and Disadvantages
The advantage to having the property taxes taken out with the mortgage payment and paid on your behalf is that it's one less bill to worry about. It's convenient and can help homeowners properly budget for the expense of tax. It's similar to having your income tax deducted from your paycheque rather than being responsible to set it aside yourself. The disadvantage is it can be challenging for the lender to estimate how much your property taxes will be, especially for new construction. The lender may collect their estimated tax amount and then adjust it after the first one or two invoice cycles. This can sometimes throw homeowners for a loop because they budgeted for $200 per month and then it increases to $250 per month, for example. Or, the lender is deducting more than what the property tax actually is but wants to do so to anticipate an increase in the near future. Even with these small fluctuations, paying property taxes this way often works out to be very convenient for most homeowners.
The advantage to paying the property taxes yourself is that you pay exactly what is owed, no more and no less. You have control over this bill payment and can choose between payment in full or a payment plan arranged with the municipality. The disadvantage is sometimes homeowners don't adequately plan for the expense and can fall behind in their property tax. If you are an experienced homeowner, have a flexible budget, or are willing to arrange for a payment plan, paying property taxes yourself can be a great option.
Things to Keep in Mind
Even when the lender collects your property taxes with your mortgage and pays it on your behalf, there can be a shortfall on first bill. This is because the lender may not have had enough time to collect all of the property taxes before the bill was due, or they didn't estimate enough. By the time the next bill cycle rolls around, it should all be worked out. However, it's important to budget a little money aside for this first property tax bill in case this situation arises.
Who to Contact?
Property taxes and mortgage payments are different, despite them being rolled into one if your lender is paying the taxes on your behalf. Contact your municipal tax office for any property tax questions you may have. Your mortgage professional should be happy to help point you in the right direction, answer any questions or connect you with your lender if need be.
Wondering something that I haven't covered? Reach out anytime!
Sarah Nixon-Miller, Mortgage Broker
Toll-free Across Canada 1-844-315-6609
sarahnm@mortgagegroup.com