How Property Tax Increases Affect Your Buyer’s Future Mortgage Payments

Mortgage Mike Helps | How Property Tax Increases Affect Your Buyer’s Future Mortgage Payments

Link to YouTube Video Episode: https://youtu.be/WFTFESiYUfY

Think your fixed-rate mortgage means fixed payments? Think again. In this eye-opening video, mortgage experts Brendan and Mike Riley delve into the often-overlooked world of property tax reassessments in Florida. Discover how purchasing a home can lead to a significant increase in your property taxes—and consequently, your monthly mortgage payments.​

We'll explore why two similar homes can have vastly different tax bills, the impact of Florida's "Save Our Homes" cap, and how the homestead exemption plays into this complex equation. Learn how to anticipate and plan for these changes to avoid unexpected financial strain.​

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00:00 – Introduction by Brendan and Mike Riley
00:13 – How property taxes vary based on last sale price and date
01:02 – County's reassessment process after a home sale
01:29 – Examples of significant property tax increases
02:04 – Importance of informing buyers about potential tax hikes
02:33 – Impact of tax increases on mortgage payments
03:28 – Escrow shortages and temporary payment spikes
04:17 – Legal limitations on escrow estimations
05:11 – Real-life example: Tax implications on a $400,000 home
05:31 – Clarifying misconceptions about the homestead exemption
06:14 – Final thoughts and advice for buyers

 

Don't be caught off guard—equip yourself with the knowledge to make informed decisions and protect your financial future.
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Episode Transcript

(00:00):
I'm Brendan, you're with Mike Riley, we're your mortgage experts. And do you want tobe better than 99% of other real estate agents?

(00:04):
Well then this is an important topic and we're going to get in the weeds with it. Excellent.Today we want to talk about property taxes.
Property tax bills can vary tremendously and a lot of people don't know why. It's because property taxes are based on when the house last sold and for how much it's sold for.
So sometimes your customer will be looking at houses in the same price range and that property taxes will vary wildly. One house might have sold 20 years ago for a super cheap price. That property tax bill is going to be really low versus another house in the same neighborhood.

(00:31):
The property taxes could be a couple thousand dollars more easily. Why is that it's because of when the house last sold and how much it sold for.
Now, what you need to know is that your buyer, the year after they buy their house, when the county gets one free shot to reassess that property, because the county reassesses the property every time a house is sold, the county gets one free shot at your buyer and they're going to base the new property tax amount on what this sales price was.

(01:02):
So if the last property tax bill was for $1,000 a year, because the house last sold a long time ago for really cheap, and the new tax bill is going to be $4,000 a year, and we do see cases like that, that's a $3,000 a year increase in property taxes.

(01:29):
It's rare, but not unheard of. What do you say, maybe 25% of deals, 20% of deals we work on have a significant property tax increase. So to give the best service to our buyers, your buyers and our buyers, it's a disservice if we don't let the buyer know that their property tax bill is going to go up.
Because they will call you or us when their mortgage payment increases. We like to tell people, "Hey, here's what your mortgage payment is going to be initially, and here's what your mortgage payment is going to adjust to in our estimation once the property taxes change.

(02:15):
Some realtors don't like us to tell the buyer that, but the really good ones do because we don't want our buyer to have any surprises later, even a year, year and a half after closing. The property taxes are crucial, and we deal with that all the time, don't we?
That's right, usually in the first part of each calendar year, we're getting calls saying, well, my mortgage company raised my payment and I had a fixed rate and all these other items that are irrelevant, it really comes down to the tax bill because you pay your taxes in your mortgage payment.

(02:50):
The principal and interest will be the same for the entire term of the loan. When the tax bill increases, inevitably, so will your mortgage payment. Right. We get the property tax bill from the county every year and we adjust the mortgage payment accordingly.
So this is going to get in the weeds a little bit. This is really tournament level property tax mortgage stuff. If you need to watch it a couple of times, that's fine. Or obviously you can always call us for a more complete breakdown of it.

(03:28):
But if somebody's mortgage payment or property taxes rather goes up by $3,000 a year, We know that their mortgage payment is going to increase by $250 a month permanently. But that's not all.

(03:51):
Because property taxes are paid in arrears or backwards, there's a shortage in the escrow account. So not only will there be a $250 increase in the payment permanently,
there will be an extra $250 increase temporarily for 12 months to repay the shortage. So on that type of increase, it's nothing for the property taxes to go up by $250 a month, which makes the mortgage payment rather, go up by $500 a month.

(04:27):
So the buyers get sticker shock when we can set our watch by it. Every spring, February and March, people call and say, "Mike, I thought I had a fixed rate, my payment went up, and we explain this to them. But we also explain it to them upfront, don't we?

(04:56):
We do, and you know a lot of people will say, I'm mortgage company, they miscalculated, or they misbudgeted what I was supposed to be paying each month, but the truth is the law requires that we can only escrow the minimum amount based off the most recent year's tax bill.

(05:32):
Correct, so We send the customer an email before they make the offer. Hey, here's what your payment's going to be, but we do expect that in the spring of 2027 in this case, your payment's going to increase to approximately this much. Most people decide, well, that's so far away and I don't really understand what this guy's talking about. So they just ignore that. They just want the house with the nice backyard.

(06:09):
So We do keep that email. We remind the customer of that. We just remind them that, hey, we sent you this email before you went under contract. And yes, your property tax bill, this increase was not a surprise.
On a $400,000 house, if the tax bill ends up at 1.25%, which is kind of an average number in the state of Florida for what the county will base your property taxes on, on a $400,000 house, that's a $5,000 property tax bill so it can be a big increase.

(06:56):
That's right. And another thing that people will bring up is, well, I put the homestead exemption on, I didn't think my tax bill was gonna increase at all, but that's not the case.

(07:27):
That's a great point because no matter what, even if the current owner has homestead and even if you file homestead the next year, the homestead does not help you in one regard and that is the county still gets one free shot at you to reassess your property for what they think is fair based on what you paid for it.

(07:56):
So the Homestead does limit the damage and the Homestead minimizes the amount that the property taxes can increase every year after this initial reset. But no matter what, the county gets that one reset. A lot of customers have no idea and some realtors have no idea how those property taxes work.

(08:27):
So that was really getting in the weeds, tournament level mortgage stuff. It's your job to be familiar with it is our jobs to be the experts. So give us a call and we'll talk about it with you more.