Understanding Property Taxes and Why They Increase

If you’re a first-time homeowner, you might still be a little unclear about the ins and outs of property taxes — they can even be a bit confusing for longtime homeowners, especially when they notice a sudden property tax increase. Here, we’ll explain how property taxes work, what can cause them to go up, and the potential steps you can take to decrease them.

The Basics

There are two factors that determine your property tax amount: the most recent assessed value of your home, and the effective tax rate of your municipality or region. As of February 2021, the state of Hawaii had the lowest property taxes, with $1,715 due annually on a home valued at the state’s median price of $615,300. New Jersey had the highest, with $8,362 due on a $335,600 home.

While property taxes vary by specific area in terms of how they’re used, they’re generally allocated to the “five S’s:” school, safety, spaces (public parks and recreation areas), streets, and sanitation.

Property taxes are typically paid two to four times a year, depending on your county or region — most commonly, they’re due March 1 and September 1 to cover the time in between those dates. You may also be able to choose your own payment schedule, sometimes even paying in full if you’re able.

There are a few different ways to pay your property taxes, depending on your specific circumstances. They may be bundled into your mortgage payment — this group of costs, which includes principal, interest, taxes, and insurance is known by the acronym PITI. Otherwise, you’ll pay your bill through your local tax office, either through the mail, online, or by phone.

What Causes Property Taxes to Increase?

The most common reason for a widespread rise in property taxes is a general rise in home values in a particular region, which is often due to high demand and low housing stock. There can also be a bump when local schools request more funding in order to stay up and running since much of their support comes directly from property taxes.

Many homeowners wonder if their property taxes will go up if they refinance, and the answer is no, even if your monthly payment and loan balance change. With a cash-out refinance, you’re replacing your existing mortgage with a new one for an amount that’s more than what you owe on your home. While a refinance may require a new appraisal to determine your home’s value, this is completely separate from the assessed value that’s used for tax purposes and won’t be reported to the property tax assessor. You can refinance without worrying about your property taxes being affected.

However, if you refinance and plan to use the extra cash for any projects around the house, you should be aware that some of them have the potential to increase property taxes. So while additions or renovations will likely boost your home’s value, your taxes will probably go up along with it. As for what home improvements increase property taxes, the top projects include new bathrooms, pool installation, basement finishing, and any kind of work to enhance curb appeal.

How Can I Lower My Property Taxes?

It isn’t guaranteed, but one way to try and prevent property taxes from rising is to limit home improvement projects that will add value. There are a handful of other ways to try to lower your property taxes. One way to start is by researching the home values of the other houses in your neighborhood and look for any notable discrepancies. For example, if the assessed value of your neighbor’s comparable home is $10–$15,000 less than yours, there may have been an error on the part of the appraiser and it’s worth exploring to see if you can have it corrected.

It’s also a good idea to look into whether you qualify for any tax exemptions, which are offered by various state and local governments for a number of different reasons. These include a low household income, a disability, and being a veteran or service member. While there are no guarantees that you’ll be able to decrease your property taxes, it’s a possibility that can save you some money.

What Happens If I Don’t Pay My Property Taxes?

If your property tax payment is past due, the delinquent amount becomes a lien on the home, and a tax sale — which is similar to foreclosure — may eventually occur. Before this happens, the loan servicer may advance funds and bill you, the homeowner, for reimbursement. If a tax sale does take place, you will typically have a period of time during which you can redeem the home if you pay back the delinquent taxes, plus interest (usually about a year).

Read “How to Eliminate Liens So You Can Access Your Equity” for more information about how liens work.

A home equity investment may be able to help if the reason your payment is overdue is debt-related, as it gives you access to your equity in cash in exchange for a share of the home’s future value without monthly payments. Plus, you can get the funds in as little as three weeks,¹ which can help in situations when you’re looking for relatively fast access to your equity. If your property tax has increased and you need help paying the bill, compare your options for accessing your equity.