To understand the answer to this question, you must first know about property tax. The state always taxes you for everything you own. A small percentage of the evaluated value of every property under your name is paid back to the state which in turn uses it to maintain the surrounding area for you. Money from your taxes goes towards education schools, roads, transportation, libraries, parks and other recreational activities. Property taxes may vary from place to place. The state decides on the property tax based on its financial requirements to maintain the place and its public amenities.
What Determines How Much You Pay In Property Tax
The assessed worth of your home is an annual approximation of the current market worth of your assets. The factors an assessor would take into consideration are the values of similar properties, the replacement cost of the property, maintenance cost, and the revenue it generates and so on. Once the assessment is done, the tax is calculated through a Mill levy.
This mill levy, another complex-sounding term, is the tax-rate charged on your property cost, one mill signifying one-tenth of each cent. Tax levies for separate jurisdictions in the area are as well calculated independently and then put together to form a mill rate.
Since there is so much that goes into this assessment, which is only the first step to calculating your property tax, it would be good to use an assessor with good credentials and to escrow property taxes.
Using Escrow for Property Tax
Escrow might sound like a complicated and intimidating thing, but it is nothing but a simple arrangement where an impartial third party holds on to the money when two parties are involved in a financial transaction. The third party ensures that both parties are satisfied and have held up their side of the deal before releasing the money, culminating in a fair and safe transaction.
You have probably just paid off your mortgage and when you were about to sit back and breathe that liberating sigh of relief, there propped up your property tax bill on your table. Though it comes across as a real denouement, we must all agree that this is an essential and inevitable part of owning a property. If you were paying off your mortgage through your escrow account, it most likely included the property tax as well. This is done purely for the sake of convenience. The one check that you wrote all these months included principle for your mortgage, the interest, plus taxes and insurance, so you don’t have to pay each bill separately, lest you missed out any. Now that the mortgage is done with, your mortgage and interest will end, not the taxes and insurance.
This is on-going, and if you feel remembering this is becoming a hassle, you can escrow property taxes as well. Many companies are willing to take up this chore and rid you of the tedium of having to remember payment due dates, meet deadlines or sometimes have the most unpleasant end of paying penalties.
An escrow account is sometimes mandatory while you are paying off your mortgage. With transactions involving significant amounts, it offers so much surety and security that lenders coax people into opening escrow accounts by offering attractive interest rates which would eventually make a substantial difference in the overall cost. In some cases, the buyer might be able to convince the lender of his prompt payment pattern and cancel the escrow account, if necessary. However, in most cases, this is neither allowed nor considered necessary.
Having gotten used to such convenience while you paid much more significant amounts as mortgage, it is quite common to consider the tax bills and insurance as a nag, especially when it comes with its share of penalties when delayed. This is the reason most people opt for an escrow on their property taxes as well.
The Bottom Line
While offering convenience and security, it has its own demands. Most escrow accounts expect you to pay up six months’ property taxes or a year's insurance upfront. However, when weighed against the risk involved in not using it and considering the convenience of using it, it is but a small price to pay. Property taxes are usually paid twice a year, and since it, there is no likelihood of it ever becoming non-existent, it would be prudent to settle into a sure, safe and convenient way of dealing with it.