what is includes mortgage property taxes
Short answer
Mortgage property taxes are typically collected monthly through an escrow account alongside principal and interest, then remitted by the lender when municipal taxes come due ([Phila](https://www.phila.gov/2025-05-05-got-a-mortgage-on-your-philly-home-heres-what-you-should-know-about-property-taxes); [Consumerfinance](https://www.consumerfinance.gov/ask-cfpb/on-a-mortgage-whats-the-difference-between-my-principal-and-interest-payment-and-my-total-monthly-payment-en-1941)). The Consumer Financial Protection Bureau noted on 2023-08-28 that a total monthly mortgage payment usually bundles principal and interest with taxes, homeowners insurance, and potentially mortgage insurance ([Consumerfinance](https://www.consumerfinance.gov/ask-cfpb/on-a-mortgage-whats-the-difference-between-my-principal-and-interest-payment-and-my-total-monthly-payment-en-1941)). If an escrow account is not established, the homeowner must pay property taxes directly to local taxing authorities ([Consumerfinance](https://www.consumerfinance.gov/ask-cfpb/on-a-mortgage-whats-the-difference-between-my-principal-and-interest-payment-and-my-total-monthly-payment-en-1941)).
“Many homebuyers make the mistake of looking at just the principal and interest payment, leading to an unpleasant surprise when they learn their total monthly payment is much higher.”
— Consumer Financial Protection Bureau, U.S. government agency
How property taxes are incorporated into a monthly mortgage payment#
A standard monthly mortgage payment bundles principal and interest with municipal property taxes by using an escrow account as a holding buffer (Phila; Consumerfinance). When property taxes are part of this monthly remittance, the servicer splits the payment, routing the loan principal and interest to the loan balance while diverting the tax funds into a separate reserve (Phila; Consumerfinance).
An escrow account is a dedicated holding account managed by a loan servicer to hold funds for recurring property liabilities like taxes and hazard insurance. The National Association of Realtors (NAR) stated on 2025-02-26 that the most widespread mechanism for paying property taxes is an escrow account, into which a portion of the monthly mortgage payment is collected and automatically disbursed toward the tax bill when due (NAR). Similarly, the City of Philadelphia Department of Revenue noted on 2025-05-05 that many mortgage lenders establish an escrow account that borrowers pay into monthly, from which the lender remits property taxes to the municipality (Phila).
- Homeowner pays servicer
- Servicer splits principal & tax
- Escrow account holds tax funds
- Servicer remits to municipality
In the mortgage lending industry, this bundled structure is known as PITI, representing principal, interest, taxes, and insurance. The monthly tax collection is calculated by taking the estimated annual property tax assessment and dividing it across twelve regular installments:
monthly_escrow_tax = annual_property_tax / 12
Because local taxing authorities alter assessments or local millage rates, an escrow payment is rarely static over the life of a loan. When a taxing jurisdiction issues a new tax charge, the servicer pays the bill out of the collected pool, which can lead to adjustments during an annual review.
| Payment Component | Recipient | Handling Mechanism |
|---|---|---|
| Principal & Interest | Mortgage Creditor / Investor | Applied directly toward loan payoff and financing cost (Consumerfinance) |
| Property Taxes | Municipal / County Tax Collector | Held in escrow and disbursed automatically when due (Phila; NAR) |
| Homeowners Insurance | Insurance Carrier | Collected via escrow and disbursed to policy provider (Consumerfinance) |
Identifying property tax allocations and handling direct billing#
Homebuyers can locate their exact escrowed property tax projections directly on their initial standard lending documents (Consumerfinance). The CFPB documented on 2023-08-28 that a borrower's estimated total monthly payment, including escrow amounts for taxes, is presented on page 1 of the Loan Estimate in the Projected Payments section (Consumerfinance). This transparent breakdown ensures buyers evaluate the complete monthly outlay rather than looking solely at baseline borrowing costs (Consumerfinance).
Real estate transactions regularly involve distinct disclosures governing how these payments proceed when an escrow account is cancelled or waived (Consumerfinance).
Under federal regulation 12 CFR 1026.38, Closing Disclosures must explicitly include:
- A statement that a consumer may be able to cancel an established escrow account, while confirming the consumer remains responsible for directly paying all property costs without an escrow account (Consumerfinance).
- A description of the potential consequences of failing to pay property costs, including actions state or local governments may take for unpaid property taxes (Consumerfinance).
- Creditor actions that may occur if taxes lapse, such as adding amounts to the loan balance, adding an escrow account to the loan, or purchasing property insurance (Consumerfinance).
Direct tax billing also functions differently depending on whether an escrow arrangement is active. For example, in York County, Virginia, property owners whose mortgage company pays taxes through an escrow account receive real estate tax bills strictly for their records (Yorkcounty). In that jurisdiction, homeowners without an escrow arrangement must remit the bill themselves by the due date (Yorkcounty).
- Review page 1 of your Loan Estimate or Closing Disclosure to see whether an escrow line item appears in the Projected Payments section (Consumerfinance).
- Verify any local tax bills received by mail against your servicer's online portal to confirm whether the document is stamped for informational records only (Yorkcounty).
- Check whether your municipality permits exemptions, such as a homestead exemption, to reduce taxable assessed values before annual disbursements occur.
| Feature / Obligation | With Escrow Account | Without Escrow Account (Direct Pay) |
|---|---|---|
| Monthly payment composition | Includes principal, interest, property taxes, and insurance | Limited to principal and interest (and mortgage insurance if applicable) |
| Entity remitting payment to taxing authority | Mortgage servicer / lender | Homeowner directly |
| Tax bill received by homeowner | Sent strictly for the homeowner's records (depending on local practice, such as in York County) | Actionable bill requiring direct remittance by the due date |
| Location on loan paperwork | Listed under Projected Payments on page 1 of the Loan Estimate | No escrow line item listed under Projected Payments |
| Consequences of non-payment | Servicer disburses from escrow reserve | Creditor may add amounts to loan balance, impose an escrow account, or local government may take enforcement action |
| Disclosure Category | Mandated Disclosure Content |
|---|---|
| Account cancellation | Statement that the consumer may be able to cancel an established escrow account, but remains responsible for directly paying all property costs in its absence |
| Future cost adjustments | Statement that property costs may change, which may result in changes to the consumer's escrow payment |
| Government consequences of non-payment | Description of actions a state or local government may take if property taxes are not paid |
| Creditor remedies for non-payment | Actions the creditor may take if property costs are unpaid, such as adding amounts to the loan balance, adding an escrow account, or purchasing property insurance on the borrower's behalf |
Frequently Asked Questions
What does it mean when property taxes are included in a mortgage?
Property taxes are included as part of your total monthly payment if your lender sets up an escrow account. In this arrangement, a portion of each monthly mortgage payment is deposited into escrow and automatically remitted to your municipality or taxing authority when taxes are due. If no escrow account is established, property taxes are not included in your monthly mortgage payment, and you must pay them directly to the state or local government.
Sources
- Got a mortgage on your Philly home? Here’s what you should know about property taxes! | Department of Revenue | City of Philadelphia - Phila (2025-05-05)
- On a mortgage, what’s the difference between my principal and interest payment and my total monthly payment? | Consumer Financial Protection Bureau - Consumerfinance (2023-08-28)
- Real Estate Tax | York County, VA - Yorkcounty (2026-09-21)
- § 1026.38 Content of disclosures for certain mortgage transactions ... - Consumerfinance (2026-09-21)
- Consumer Guide: Property Taxes - NAR (2025-02-26)