A lot of clients ask me if they should be paying property taxes directly through their mortgage payment?
Paying your property taxes through your mortgage payment directly can offer the convenience of one less bill to deal with each month. However is it really worth it or not, what is the real cost of this option to you?
This is how property taxes are paid normally in the City of Vancouver and other areas of Metro Vancouver including Burnaby Property Taxes, City of Coquitlam Property Taxes, City of Port Moody Property Taxes, City of Richmond Property Taxes, West Vancouver Property Taxes, City of New Westminster Property Taxes, City of North Vancouver Property Taxes.
Property taxes are typically paid to your municipality on a quarterly, semi-annual or annual basis depending on where you live. The total taxes for the year are calculated based on your property’s assessment and then multiplied by the municipality’s current tax rate for your property type and location. The exact tax amount owed on your property will fluctuate from year-to-year as these two variables change every year.
Now you may ask yourself, why do the Bank want me to pay my property taxes directly?
The reason banks do this is that if you are suddenly unable to make your tax payments, the city can place a lien on your property. If you were to file for bankruptcy or foreclose on the property, this lien is paid out first before the debt payments owing to the lender. Therefore, lenders reduce their risk of being second in line if you can't make your payments, by paying your taxes they have control on making sure taxes are paid first.
When Combined Property Tax and Mortgage Payments are RequiredIf you hold less than 20 percent of the property value or if you are a first-time homebuyer, most lenders will require that you pay your property taxes through them, especially if they are offering competitive rates. Also, if you are purchasing a rental property then you should have invested at least 20% already and will have the flexibility of paying taxes directly.
Your bank or lender simply estimates the total annual property tax payment then divides this amount by the number of mortgage payments you make each year and holds them in an account until property taxes are due. In theory, it sounds simple right?
However, lenders and banks will often collect more than the estimated annual tax amount in order to cover any possible changes in annual tax increases. Different municipalities also have different payment deadlines, and in order to reduce the risk of getting caught without having enough cash to cover the payment, they will collect more per month than is needed making you pay a bit more.
Why do Homeowners like the Lender to pay Metro Vancouver Property Taxes
Budgeting for a large annual or semi-annual payment – or instead of, being surprised by a large property tax payment – homeowners can pay monthly installments. For busy homeowners, this security may be worth the costs associated with the lender doing the job.
This said you have to make sure the Bank or Lender institution is actually paying the taxes on time, it has come to my attention that sometimes they are late and several clients have received interest charges, although the lender will pay them not everyone notices this, so make sure you are on top of this and don't just take the lenders word for it.
When your Bank and Lender are approaching your annual property tax payment as an investment, and you should too. If you feel comfortable budgeting for your property taxes each year then you can make significant reductions in unnecessary debt-related costs and increase your monthly cash flow and a better system by paying your taxes yourself, many municipalities can debit the exact amount from your bank account or you can set pre-authorized payments to the city every month for the exact amount.
Check the City of Vancouver Property tax website or call them at 311, every other municipality also has a property tax department that can help you in setting pre-auth payments.
BC Assessment produces independent, uniform and efficient property assessments on an annual basis for all property owners in the province.
Paying Property taxes -Vancouver Mortgage Broker Real Estate Advisor Adan Sprauer