Are Property Taxes Included In Your Mortgage? | Escrow 101

Yes, property taxes are often included in your monthly mortgage payment through an escrow account.

You close on a house, look at the monthly payment, and see a number that’s a good chunk larger than just the loan principal and interest. That’s not a mistake — lenders commonly fold property taxes and homeowners insurance into that single payment.

The honest answer: For many homeowners, property taxes are automatically included via an escrow (also called impound) account. Your lender collects a portion each month and pays the tax bill when it’s due. Whether you’re required to have that account depends on the type of loan you have and how much you put down.

What Is an Escrow Account and How Does It Work?

An escrow account is a separate financial account your mortgage lender sets up to hold money for property-related expenses. The Consumer Financial Protection Bureau defines escrow accounts as accounts that cover property taxes and homeowners insurance automatically, so you don’t have to manage those large lump-sum payments.

Each month, your mortgage payment includes roughly one-twelfth of your annual property tax bill and insurance premium. That money gets deposited into the escrow account and sits there until the bills come due.

When the tax collector sends a bill, your lender pays it directly from those escrow funds. You typically never see the bill or need to write a check for it. The system is designed to protect both you and the lender from missed payments.

When Is Escrow Required — and When Can You Opt Out?

Lenders want escrow because it ensures property taxes are paid on time, which prevents a tax lien from taking priority over the mortgage. But the rules vary by loan program.

• Government-backed loans: FHA, VA, and USDA loans require an escrow account. There is no opt-out for these programs.
• Conventional loans with less than 20% down: Almost all lenders will require escrow to lower their risk. A low down payment signals higher risk, so escrow is standard.
• Conventional loans with 20% or more down: You may be permitted to pay property taxes directly. Some lenders still require escrow even with a large down payment, so check your loan terms.
• Check your documents: Your monthly mortgage statement or closing disclosure will clearly show whether property taxes are included in your payment. Look for a line labeled “Escrow” or “Taxes.”

Having escrow means you never face a surprise $5,000 tax bill. But it also means you lose some control — you can’t invest that money or decide to pay late if cash is tight. For most borrowers, the forced savings is worth the trade-off.

How Property Taxes Are Paid Through Your Mortgage

Once your escrow account is active, the process runs mostly in the background. Your property tax bills are sent directly to your mortgage servicer, who then pulls the money from your escrow balance. Philadelphia’s city guidance explains that after setup, the tax bills sent to servicer and you generally do not need to pay them directly.

Even if taxes are included, it’s smart to verify that your escrow balance is correct. Your lender will perform an annual escrow analysis to see if payments need to be adjusted based on actual tax amounts.

Pros and Cons of Including Property Taxes in Your Mortgage

Deciding whether you want escrow (if you have a choice) depends on your financial habits. Here are the main trade-offs to weigh.

1. Convenience: One monthly payment covers everything. You avoid saving for a large tax bill twice a year.
2. Discipline: The lender makes sure taxes are paid on time. No risk of forgetting and facing late fees or a tax lien.
3. Loss of control: You cannot invest that money or use it for other needs. Your monthly payment is locked in.
4. Unexpected increases: If property taxes or insurance rates rise, your monthly payment goes up. That can strain a tight budget.

For borrowers who struggle with lump-sum payments, escrow is a clear win. If you have a conventional loan with enough equity and you’re disciplined about saving, paying taxes directly gives you more flexibility — but check if your lender allows it.

What Happens If Your Escrow Payment Goes Up?

A jump in your monthly mortgage payment often traces back to changes in property taxes or insurance costs. The Consumer Financial Protection Bureau notes that an escrow or impound account holds funds for exactly these expenses, but the amount can fluctuate with reassessments or rate adjustments.

If your payment jumps, review the annual escrow analysis statement your lender sends. It will itemize how much the taxes and insurance cost and whether there was a shortage. You also have the option to pay a shortage in one lump sum to keep your regular payment lower.

The Bottom Line

Property taxes are commonly included in mortgage payments through escrow accounts, and the practice is required for many loan types. If you prefer to pay taxes directly, you’ll generally need a conventional loan with at least 20% down — and even then, the lender may still require escrow. Either way, always read your loan documents and your monthly statement to know exactly how your taxes are handled.

Your mortgage lender can review your specific loan terms and tell you whether removing escrow is an option based on your current equity and payment history. A housing counselor can also help you understand how escrow affects your monthly budget.