Refinancing your mortgage can come with all kinds of financial benefits: the potential to lower your monthly payments, save on interest costs and access cash from the equity you’ve built in your home. There are plenty of questions to answer when thinking about refinancing, including whether refinancing will raise your property taxes. Here’s what to know.
Does refinancing affect property taxes?
If you’re concerned that refinancing your mortgage will lead to unwanted changes in your property taxes, you can rest easy: Refinancing will not actually increase your bill, at least directly.
If you’re doing a cash-out refinance, refinancing can impact your property taxes if you’re using those funds for a remodel. That’s because a construction project could trigger a reassessment.
It’s also important to understand that a new mortgage will come with new terms that can impact how you set aside cash from your budget for property taxes, says Lisa Greene-Lewis, CPA and tax expert at TurboTax.
“Homeowners need to consider whether the new loan will require them to impound their property taxes, meaning pay them every month with the loan payment or whether they will pay them twice a year outside of the loan,” Greene-Lewis says. “This is a consideration as it may depend on your finances and your stream of income. Some people prefer to pay their property taxes twice a year instead of having that bump out of their pocket every month.”
If you’re going with a new lender, though, that lender might have different escrow requirements altogether, and you might need to fund the escrow account in advance of the old lender refunding the balance. Some lenders don’t give borrowers the option to self-pay property taxes, either.
While you’ll be paying closing costs and handling a lot of paperwork in the midst of refinancing, there’s one piece of good news: You might still be able to take advantage of a property tax deduction when it’s time to file your income taxes, assuming you’re itemizing instead of taking the (higher) standard deduction.
“Whether your property taxes are impounded monthly or paid twice a year, you can still deduct up to $10,000 in total state and local property taxes,” Greene-Lewis says.
Factors that impact property taxes
So, what does impact your property tax bill? The most important factor is your home’s assessed value, which is not the same as the fair market value or appraised value. For one, assessors have their own methodology that differs from that of appraisers, and while your home will be appraised in the process of refinancing, the results of the appraisal are shared with …….