Money Moves with G: Property Taxes and Escrow

Key Takeaways

• Your monthly mortgage payment is often more than principal and interest: it can also include taxes and insurance, held in escrow
• Online calculators often use a home's current tax bill, which may understate what your taxes will be after you buy
• Grafton's example: a home taxed at about $2,000 a year can be reassessed to roughly $3,500 after it sells, about $125 more per month in the payment
• Hardin County tends to be on the lower end of property tax rates, which Grafton put between 0.9 and 1.2 percent, all-inclusive of county and city
• Paying early at the Hardin County Sheriff's Office earns a 2 percent discount; paying late brings a 5 percent penalty
• Check card processing fees before paying with a card, since they can cancel out the discount

Summary

Grafton Sizemore took on "the word nobody loves to hear" this week: taxes. His Money Move is for anyone who owns a Hardin County home or is thinking about buying one, and it starts with a simple idea. The payment you see on a listing site is not always the payment you will make.

He explained what escrow is, how Hardin County property taxes work, why a sale can change a tax bill, and how paying early can save a little money. He kept it educational, and nothing in it is a rate quote or advice.

Full Article

Grafton began with his housekeeping. In his own words on air: "I'm a team loan officer with Motto Mortgage Home Group in Elizabethtown, NMLS number 2068414." He said that anything he shares that does not have to do with interest rates or mortgage news is simply his opinion, that he is "not a licensed CPA, a licensed financial advisor," and that anything he says "is just education, not an offer." If you would like to get pre-qualified, he said, you can always give him a call.

Your payment is more than principal and interest

"One of the first things I see from a lot of first-time homebuyers is when they begin to calculate their payment, they'll go on Zillow, they'll go on realtor.com, they'll use a calculator," Grafton said. Those tools do not always properly estimate taxes and insurance. A lot of first-time buyers do not realize it is "not just what we call the PI, or the principal and interest." Most payments are all-inclusive: principal, interest, taxes and insurance, in one monthly payment.

That is escrow. The mortgage company, or whoever is servicing the loan, pays your insurance and taxes for you once a year, and you set those pieces aside in your monthly payment. "So you escrow those pieces into that monthly payment," Grafton said.

Hardin County tax rates

Hardin County tends to be on the lower end of tax rates for a lot of counties, in Kentucky and across the country, he said. He put the rate between 0.9 and 1.2 percent, all-inclusive of county and city taxes, depending on where you are: Elizabethtown city taxes, Vine Grove, Radcliff, or county taxes only if you are outside any city limits.

The easiest way to see the rate on a property you own or are looking at is the Hardin County Sheriff's website. "A lot of people would not realize that's who actually takes all of our tax payments in the area," he said.

Why the current bill may not be your bill

Grafton's warning: do not assume the current tax bill is what you will pay. His example used easy numbers. Say a house was worth $200,000 ten years ago; at about 1 percent, that is roughly $2,000 a year in taxes. If it sells for $350,000, he said, the county is likely to reassess it, and "it's usually not where they go inside. It's a drive-by." The tax would go up to roughly $3,500 a year, an increase of $1,500.

That is why it matters. "Don't always assume that whatever the tax bill is now, it's going to be what it is once you purchase it, because it's likely going to get reassessed." Zillow and realtor.com often use the current tax bill to estimate what your escrowed payment would be, he said. The difference between $2,000 and $3,500 a year is about $125 a month in the payment, "so that can really skew the numbers for somebody."

Paying early, paying late

If you pay your own taxes rather than escrow, it is a lump sum that becomes due December 1. In Hardin County, as in a lot of counties, if you pay early you usually get a discount: 2 percent when you pay at the Hardin County Sheriff's Office. On a $300,000 home, Grafton said, that is somewhere in the ballpark of $60.

He cautioned that a card may not be the way to do it. "If you pay that with a card and not a check, I still think that the county, and don't quote me on this, I think they're around 2.5 percent to use your card as a processing fee," he said. In that case you would pay roughly what you would have paid anyway, so check the fee before you pay. And if the bill is not paid by December 31, there is a 5 percent penalty. Tax bills, he said, should be arriving in the mail right about now.

If you escrow your taxes instead, you are not charged interest on that money. "It is literally just held in an escrow account and paid early."

The Money Move

Grafton's close: when you buy a house, be ready to pay some taxes, because that is how the county takes care of its roads, school systems and the services everyone in the community can use. For questions about why rates are what they are, he suggested your local mortgage professional or county officials. "Get over to the Hardin County Sheriff's Office, start paying your property taxes, save yourself a little money, that 2% discount by paying it early."

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