Property taxes usually do come out of escrow, but only if your lender set up an escrow account when you got your mortgage
When you have a mortgage with an escrow account, your lender collects money from you each month to cover property taxes, homeowners insurance, and sometimes mortgage insurance. The lender holds this money in the escrow account and pays your property tax bill directly to your county or municipality when it comes due. You do not write a separate check to the tax assessor—the lender handles it.
However, not every homeowner has an escrow account. If you put down 20 percent or more on your home, your lender may have let you skip escrow. If you own your home outright with no mortgage, you pay property taxes on your own. And if you have a very old mortgage or refinanced under certain conditions, you might have opted out of escrow. In those cases, property taxes do not come out of escrow because there is no escrow account to draw from.
Key Takeaways
- Your monthly mortgage payment includes an escrow portion that covers property taxes, homeowners insurance, and sometimes mortgage insurance.
- The lender pays your property tax bill directly from the escrow account when the bill arrives, so you do not receive a separate tax bill to pay yourself.
- You only have an escrow account if your lender required one—typically when you put down less than 20 percent on your home.
- If you do not have an escrow account, you are responsible for paying property taxes directly to your county or municipality on your own schedule.
- Your escrow account is reviewed once a year, and your monthly payment may increase or decrease based on changes to tax assessments or insurance premiums.
When your lender requires an escrow account
Most lenders require an escrow account if you are putting down less than 20 percent on your home purchase. This protects the lender because it guarantees that property taxes and insurance will be paid on time—if either one falls behind, the lender's investment in the property is at risk. The lender collects one-twelfth of your estimated annual property tax bill each month, along with one-twelfth of your homeowners insurance premium and any mortgage insurance you owe.
When your property tax bill arrives, the lender receives it and pays it from your escrow account. You will not see the bill yourself or have to write a check. The same happens with your homeowners insurance premium—the lender pays it directly from escrow. This arrangement continues as long as you have the mortgage and the lender requires escrow.
How escrow amounts are calculated and adjusted
Your lender estimates your annual property tax bill based on the assessed value of your home and the tax rate in your area. They divide that number by 12 and add it to your monthly mortgage payment. The same calculation happens for homeowners insurance. If your property taxes are $2,400 per year, for example, your escrow payment would be $200 per month, plus the insurance portion.
Once a year, usually in the fall or winter, your lender reviews the escrow account in what is called an escrow analysis. They check whether the actual taxes and insurance paid matched what they estimated. If property taxes went up or your insurance premium increased, your monthly payment will go up. If taxes or insurance went down, your payment may decrease. The lender will send you a letter explaining the new payment amount and when it takes effect.
Sometimes escrow accounts run short—meaning the lender paid out more than you contributed over the year. In that case, the lender may ask you to make a lump-sum payment to bring the account current, or they may spread the shortage across your next 12 months of payments. Conversely, if the account has a surplus, some lenders will refund the overage to you, while others explore it to your next year's escrow payments.
If you do not have an escrow account
If you put down 20 percent or more, your lender may have offered you the choice to skip escrow. If you chose that option, you pay property taxes directly to your county or municipality. You will receive a property tax bill in the mail, usually once or twice per year depending on where you live. You are responsible for paying it by the important date shown on the bill, or you may face penalties and interest charges.
Homeowners without escrow also pay their homeowners insurance premium directly to their insurance company. This gives you more control over when and how you pay, but it also means you have to remember to pay two separate bills on your own schedule. If you miss a property tax payment, the county can place a lien on your home. If you miss an insurance payment, your policy may be cancelled and your lender could force you to buy more expensive coverage.
What happens if your escrow account runs out of money
An escrow shortage occurs when the lender pays out more in taxes and insurance than you have contributed. This can happen if property taxes increased significantly between escrow analyses, or if your homeowners insurance premium jumped. When the lender discovers a shortage during the annual escrow analysis, they will notify you in writing.
You have options for handling a shortage. The lender may ask you to pay the full amount in one lump sum. Alternatively, they may spread the shortage across your next 12 months of payments, raising your monthly escrow payment. Some lenders allow you to choose which method you prefer, while others make the decision for you. If you cannot afford a lump-sum payment, ask your lender whether spreading it out is possible.
How to check your escrow account balance
You can request an escrow statement from your lender at any time, though most lenders send one automatically once a year. The statement shows how much money you have contributed to escrow, how much the lender has paid out for taxes and insurance, and what your current balance is. It also shows the estimated amounts for the coming year and what your new monthly payment will be.
If you notice an error on the statement—for example, if the property tax amount seems too high—contact your lender right away. You can also reach out to your county assessor's office to verify what your actual property tax bill should be. If the lender made a mistake in their estimate, they will correct it and adjust your payment accordingly.
Frequently Asked Questions
Can I pay my property taxes without going through escrow?
Only if you do not have an escrow account. If your lender requires escrow, you cannot opt out—the lender must collect the money and pay the bill. If you have the option to skip escrow and chose it, you can pay taxes directly. If you want to stop using escrow after you already have it, you would need to refinance or pay off your mortgage.
What if I disagree with the property tax amount the lender is collecting?
Contact your county assessor's office to verify the actual tax bill. If the assessor's amount differs from what your lender is collecting, give your lender a copy of the official bill. The lender must adjust the escrow payment to match the real amount owed. Disputes over the assessed value itself are handled through your county's appeal process, not through your lender.
Do I get a property tax receipt if my lender pays from escrow?
Yes. The lender pays the bill and receives the receipt, but you can request a copy from either the lender or your county assessor's office. Some lenders include a copy of the tax receipt with your annual escrow statement. You may need the receipt for your tax return or to prove the payment was made.
What happens to my escrow account if I refinance?
When you refinance, your old loan is paid off and a new one begins. The old lender will close the escrow account and refund any balance to you. Your new lender will set up a new escrow account and collect an initial deposit to start it. There may be a gap of a few weeks where you are responsible for paying property taxes yourself if a bill arrives during the transition, so watch your mail carefully.
Can my lender increase my escrow payment without warning?
Your lender must notify you in writing before raising your payment. They send an escrow analysis letter that explains why the payment is changing and when the new amount takes effect. You cannot stop the increase if your lender requires escrow, but you can review the numbers and contact the lender if you think there is an error in their calculation.