As a homeowner, your property is subject to taxes levied by the local government—the exact amount you owe depends on your location (expenses vary by state and county) and your home’s value. Property taxes are collected annually and the money is used to pay for various amenities like parks, road maintenance, schools, and police/fire services.
Property taxes can have an unexpected impact on the affordability of your monthly mortgage payment, which consists of more than just loan principal and interest costs—it also includes amortized payments for things like your homeowner's insurance and your property taxes. In most cases your loan servicer will estimate your property taxes for the upcoming year and spread that amount over 12 payments, adding it to your monthly mortgage payment. They deposit those designated funds into an escrow account throughout the year, then make the payment on your behalf when the taxes are due.
Before making that payment, your lender will typically perform an audit on their escrow calculations and schedule a refund if they have over-collected. If funds are over-collected in prepaids and have already been distributed to the county, the county will be responsible for your refund instead.
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