Should I pay property taxes through my mortgage?

This piece was originally published on December 9, 2020, and was updated on May 9, 2025.

With files from Jordann Brown.

What are property taxes?

Property taxes are fees collected from homeowners by your local council or city council. These taxes help fund essential community services like garbage collection, snow removal, road maintenance, and emergency services like police and fire departments. In many regions, school taxes are also included as part of your overall property tax bill, although this varies by municipality. For example, in Toronto, education taxes are a distinct component of the overall tax rate.

Property taxes are calculated as a percentage of your home’s assessed value. They’re paid on a quarterly, semi-annual or annual basis, depending on the municipality. Your municipality may also break your property taxes down into several different rates. For example, Toronto breaks property taxes down into three parts: 

• City tax
• Education tax 
• City building fund

Here’s an example of the annual property tax you might pay on a home with an assessed value of $400,000 in Toronto.

The exact amount of property tax you owe will fluctuate based on your home’s value (which varies) and the municipality’s tax rate.

How to pay property taxes

When it comes to paying your property taxes, you have two main options:

1. Pay them directly to your municipality
2. Have your lender collect and remit them on your behalf as part of your mortgage payment

Each method comes with its own advantages and considerations, depending on your financial habits, equity in your home, and whether your lender allows the choice. Let’s break them down.

1. Paying property taxes yourself

​​In this setup, you can pay your property taxes directly to your municipality — usually on a quarterly, semi-annual, or annual basis, depending on where you live. Your city will send you a bill with the due dates, and you’ll be expected to pay the full amount by the deadline.

This option offers more control and flexibility. For example, you can:

• Earn interest by parking the funds in a high-interest savings account throughout the year.
• Use a credit card to pay the bill (if your city allows it), letting you earn travel rewards points or cash back.
• Budget your payments in a way that aligns with your cash flow.

However, this option requires discipline. You’ll need to consistently set aside enough money so you're not caught off guard when the bill is due. Missing a payment can lead to penalties, interest charges, or a tax lien in extreme cases, which gives the city a legal claim to your property.

2. Paying your real estate taxes through your mortgage

Many lenders collect your property taxes along with your monthly mortgage payment and forward the payment to your municipality on your behalf. This is often mandatory if:

• You’re a first-time homebuyer
• You made a small down payment (typically less than 20%)
• You have limited equity in your home
  

Why the restriction? If you don’t pay your property taxes, your municipality can place a lien on your property. A lien is a legal claim against property – in this case, the city would be able to claim your unpaid taxes against your home if you were to file for bankruptcy. Here’s the trouble for your lender: The lien generally supersedes your mortgage debt. So, to reduce the risk of the lender not getting their full investment back, they insist that ‘higher risk’ borrowers pay property taxes through them.

If you have a significant percentage of equity in your home or if you are buying a rental property, your lender may allow you to pay property taxes separately. If this flexibility matters to you, it’s worth confirming the setup during your mortgage approval process.

How your lender pays your property taxes

If your property taxes are rolled into your mortgage, your lender handles the entire process and you likely won’t even notice it happening. To pay your property taxes, your lender estimates your annual property tax payment. The estimate is based on previous year’s property taxes, your home’s most recent assessment, and an extra percentage to account for property assessment fluctuations and tax hikes.

Your lender will then take this estimate and divide it by the number of mortgage payments you’ll make in a year. It will collect that amount on top of your monthly mortgage payment. For example, if your lender estimates you’ll pay $2,500 in property taxes in a year, and you make your mortgage payments monthly, your lender will collect an extra $208.33 ($2,500 / 12 = $208.33) each month.

When the money is collected, your lender holds it in an escrow account until the property taxes are due. If there is extra left in the account after the property taxes are paid, your monthly payment in the next year will be revised to compensate.

Should you pay property taxes through your mortgage?

Just because you’ve the option to pay your property taxes yourself doesn’t always mean it’s the best choice. Here’s what to consider when deciding whether to pay your property taxes through your lender.

Pros:

• It's easy: Letting your lender collect and pay your property taxes is the easiest way to ensure they’re paid on time. You don’t have to worry about remembering to make your payment, which may only come once or twice a year.
  
  
• Better budgeting: Your lender will estimate your property taxes and add that amount to the sum withdrawn from your account as your mortgage payment, which makes it easy to budget for them.
  
  

Cons:

• Missing rewards: Some municipalities let you pay your property taxes via credit card, and if you have a rewards card, you could earn points or cash back. Letting your lender pay your bills on your behalf means you’ll miss out on potential rewards.
  
  
• Missing interest: When your lender collects your property tax, they hold it in escrow until the payment is due to your city. While the money is being held, it earns interest, but the rates aren’t usually as good as the best high-interest savings accounts, so you are missing out on extra interest you could be earning.
  
  
• Harder to switch lenders: Some lenders may make it slightly more complex to transfer your mortgage or get a payout statement while escrowed taxes are still being held. It’s not a major obstacle, but it can delay closing if you’re refinancing or switching.

Property taxes for first-time home buyers

In most cases, if you’re a first-time home buyer, your lender is going to require that you pay your property taxes through your mortgage. There are two primary reasons for this:

1. Low equity: If you have a down payment of less than 20%, you won’t have enough equity in your home for your lender to consider allowing you to pay your property taxes yourself. Most lenders require you to have 20% equity or more.
2. Inexperience with homeownership: As a new homeowner, you may not be familiar with when and how property taxes are billed. To avoid the risk of missed payments and the potential for a tax lien, lenders prefer to handle the payments directly.

The bottom line

Paying your property taxes through your mortgage is an investment in your property’s future. Your lender knows this, which is why they will often insist that you go this route. Sure, it’s not strictly the best way to earn interest or rewards on that money, but it’s one less thing for you to worry about when you take your first steps into homeownership.

Also read:

• How inflation affects your mortgage
• Should I buy a house in a recession?
• The trigger rate: Everything you need to know
• Should I extend my mortgage amortization?
• How does the rising stress test impact mortgage affordability?