Should you pay your own property taxes?

Do you have the lender pay your property tax on your behalf while they are paying your mortgage? I know that this is way easier to have one less bill the think about arriving in the mail each month but have you ever considered if this is in your best interest? Truly, convience is the only benefit to having the lender to this for you. Here are a couple down sides that you need to be aware of:

Build up of reserve in Tax Account

Your mortgage lender is not in the business of loaning you extra money at 0% interest. For this reason when they create a tax account for you they will actually collect extra money so that they have a reserve of funds on hand to pay your taxes with. This can cause you to overpay into a tax account at the start of your mortgage agreement. Typically the lender will collect about 3 months of taxes from you to have in your tax account BEFORE they start paying your municipality on your behalf.

Will they pay on Time?

Once the lender has enough money built up in your tax account they will then start to pay your property tax. Do they always pay on time or on the date that the property tax is due? Not always. Some pay monthly to the municipality but some pay quarterly. It is a hit and miss situation. This then may cause you to start recieving late or unpaid notices from your town. The lender doesn't recieve these notices so they are not always aware if late penalties will be charged.

Is your mortgage insured?

Typically a lender on an insured (high ratio) mortgage will require that you allow them to pay the property taxes. This is standard across most lenders so if you are purchasing with less than 20% down you will likely be required to have the lender pay property taxe

So, while it is a convenience to have only one bill (mortgage) instead of two bills (mortgage + tax), there are these two downfalls to this approach you need to be aware of. It is typically best to pay your own municipal tax bill. However if the trip to the town office to pay is something that you will forget to do then maybe having the lender pay them is the correct option for you.