Property taxes can drastically change your monthly mortgage payment depending on where you decide to buy a home. What’s more, these taxes can be very confusing for many homeowners. To understand how much property tax you should be paying, you need to have an awareness of how your property is valued and how the taxes are calculated.
The government collects property taxes—also known as real estate taxes—to fund a number of municipal operations, schools, roads and a variety of public services. Property taxes are calculated by the assessed property value and the mill levy (or “millage rate”).
Step one in understanding your own property tax is to get your home’s assessed value. You can either call or visit your county tax assessor’s office or obtain the information from the assessor’s website. Next, you need to know the taxable percentage of the assessed value. (That figure should also be available from the county tax assessor.) As an example, let’s say your home’s assessed value is $200,000 and that thirty percent (30%) of the assessed value is taxable. Multiply the taxable percentage by the assessed value to find the taxable amount. $200,000 times 0.3 (=30%) calculates to a taxable value of $60,000.
Once you have the taxable value, you then will multiply that taxable value by the local millage rate. The millage rate is a given percentage per $1,000 of a property’s value. Millage rates vary by region and are usually higher in cities than in rural areas. Some locations even have more than one millage rate. Multiple millage rates must be combined (added together) to find the total millage rate. With the example above, let’s assume a single millage rate of three percent (or 0.03). Multiply that $60,000 taxable value by 0.03, and the result is $1,800. That would be the property tax for one year which, when divided by twelve, would add $150 per month to the principal and interest payment.
Thinking of purchasing a home soon? Our Mortgage 101 handbook is an excellent guide for first-time homebuyers.