Monthly mortgage payments consist of principal, interest, property taxes, and homeowners insurance for many borrowers. If you have a fixed interest rate, you’ll pay the same principal and interest each month throughout the loan’s life.
The periodic fluctuation of mortgage payments comes thanks to property taxes and insurance. Entities other than your lender decide your tax and insurance bills. Below, we describe how these costs are determined and affect your mortgage payment.
Why Are Property Taxes and Homeowners’ Insurance Included in the Mortgage Payment?
Banks and mortgage companies want the collateral – your home-preserved against damage or unpaid taxes. To accomplish this, your lender will collect from your monthly payment an estimated amount to pay the taxes and premium when they become due. If the escrow account does not have enough, you may be called upon to make up the difference, either through a one-time payment or increased monthly payments.
What is a Property Tax?
Municipalities and counties raise revenues by taxing a portion of your property’s value. Local governments set the rates that average close to or just below one percent of the value in Florida. Your monthly mortgage payment turns significantly upon the assessed value of your land and home.
What Are the Factors for Property Tax Values?
Your county, town, or city uses several grounds to determine what it thinks is the value of your property. These factors include:
- Location, including proximity to schools, roads, public water or sewer, and other amenities
- Acreage of land
- Square footage of home
- Number of rooms
- Additions and improvements
- Recent sales of the property or comparable properties
- Economic conditions
What If You Disagree With the Assessment?
If you believe the local government has valued your property too high, you can ask the appraiser to reconsider. A petition to the local Value Adjustment Board represents a more formal process to challenge the valuation. Florida law gives you 25 days from the date the assessor mails you a “Notice of Proposed Property Taxes.”
You may need independent appraisals, sales data, photographs of the property, and even legal assistance in the petition. If the Board does not lower the assessment, your next recourse is a lawsuit to reverse the valuation.
Can You Lower Your Property Taxes?
Florida law automatically exempts up to $50,000 of your primary residence’s value from property taxation. You may subtract the first $25,000 in its entirety from all property taxes. If your value is appraised between $50,000 and $75,000, you get a second $25,000 exemption from taxation.
Your age, widowed or disabled status may also afford you property tax breaks. In Florida, disabled veterans receive $5,000 off of the assessed value of their properties. Check with your local government about qualifying for a tax deferral, which delays when you must pay taxes.
What is Homeowners Insurance?
Mortgage companies require homeowners’ insurance in case your property suffers damage or is destroyed. In most cases, the mortgagee is named a loss payee, and the amounts paid to recoup losses pay toward the balance. Homeowners’ insurance also compensates you for lost contents and pays damages to those injured on the premises due to your negligence.
What Events Are Covered By Homeowners Insurance?
Fires, lightning strikes, hail, tornadoes, and wind damage or destroy homes. Other covered perils include vandalism, explosions, and the sudden bursting of pipes. Normally, you won’t get coverage for flooding, rot, or other damage from slow leaks or liability from a business activity unless you purchase extra coverage for a home-based business.
What Are the Factors in a Homeowners’ Premium?
The cost of the homeowner’s insurance considers the risk of some event and the amount the insurance company may have to pay to cover the losses. Your premiums can rise or fall based upon items such as:
- Cost of replacing the structure
- Deductibles, which are your out-of-pocket costs (A higher deductible means a slightly lower premium.)
- Presence of particular dog or animal breeds, with more dangerous types raising the risk of dog bite injuries
- Non-residential activities, such as an at-home business
- Prior claims
- Credit history and record
- Condition of home
- Weather or risk of natural disasters
- Use or installation of smoke detectors and fire extinguishers
- Remodeling or upgrading of home, which tends to increase the property’s value and cost of replacement
May You Choose Your Homeowners’ Insurance?
To lower your monthly payment, you can shop for a policy. If you select one, notify your mortgage company. Should you not purchase or choose a policy, your mortgage company will do it for you. A lender-acquired policy could provide less favorable coverage or premiums.
Taking advantage of tax breaks and close examination of your insurance can lower your monthly payments and expenses of homeownership.