Do Mortgages Cover Property Taxes?

In the world of homeownership, understanding the intricacies of mortgages and their associated responsibilities is challenging but crucial. For Canadians, the dream of owning a home comes with financial obligations like property taxes. 

If you’re new to this journey, you might wonder how property taxes work and if mortgages cover them. This article will offer the insights you need to navigate this realm of homeownership with confidence.

What are Property Taxes?

Property taxes are an essential financial obligation for homeowners, serving as a primary source of revenue for local governments. These taxes contribute to funding essential public services and community infrastructure. 

Municipalities set a tax rate, which is applied to the property’s value to calculate the annual property tax bill. Homeowners often can pay these taxes in installments or in full.

How Property Taxes Are Calculated

Municipal governments play a significant role in determining property taxes in Canada. The process involves assessing the value of the property periodically. Municipal assessors typically evaluate factors like location, size, and other features.

Once the assessed value is established, municipalities apply a predetermined tax rate to calculate the annual property tax amount. These rates can vary significantly from one municipality to another.

Property Taxes in Ontario 

In Ontario, the Municipal Property Assessment Corporation (MPAC) is responsible for assessing property values across the province. This independent body determines the value of all properties in Ontario, which are then multiplied by the applicable municipal tax rate to determine property taxes.

Are Property Taxes Included in Your Mortgage?

One common misconception among Canadian homeowners is whether mortgage payments automatically cover property taxes. The short answer is no. Mortgages themselves do not inherently include property taxes. However, many lenders facilitate a system where they can collect a portion of your annual property taxes with your mortgage payment if you choose.

This approach provides a practical solution for homeowners, ensuring you stay on top of payments and fulfill your obligations.

Benefits of Paying Property Taxes Through Your Mortgage

Opting to pay for your property taxes through your mortgage lender offers many advantages:

• Simplifies budgeting: Incorporating property taxes into your regular mortgage payments ensures you allocate consistent funds toward both your mortgage and property tax obligations, preventing last-minute financial stress.
• Convenience: By having your lender collect payment for your property taxes, you eliminate the need to manage separate payments and deadlines.
• Payments can align with your preferences: Whether you want to pay monthly, biweekly, or weekly, this option can assist in spacing out your payments in a way that works best for your unique situation.

Other Ways to Pay Your Property Taxes

Payment options may differ depending on where you are in the country. Aside from covering your property taxes through your mortgage, other possibilities available to you may include:

1. Lump Sum Payment: Many people pay their property taxes in lump sums, usually when their bill comes in the mail twice a year. This straightforward method ensures the entire tax amount is settled at once, simplifying budgeting for the rest of the year.
2. Pre-Authorized Online Payment Plans: Some municipalities offer pre-authorized payment plans, allowing you to set up automatic withdrawals from your bank account. This automated installment process ensures timely payments, a more manageable distribution of the financial burden, and eliminates the risk of missing deadlines.

Understanding and choosing the payment method that aligns with your individual financial situation can significantly ease the process of meeting your homeownership responsibilities. 

What Happens if the Seller Has Prepaid the Property Taxes?

In real estate transactions, scenarios may arise where the seller has prepaid property taxes for a portion of the year. When this occurs, the buyer typically assumes responsibility for reimbursing the seller for the period they won't own the property. The reimbursement process is often facilitated during the sale's closing, with adjustments made to the final deal.

It’s essential to be diligent in understanding the specifics of your property tax payments during the negotiation and closing stages so you can decide how to move forward with payments, especially if you need to set up an arrangement with your lender.

Need Help Navigating Mortgage Payments?

Finding the best way to fulfill your financial obligations as a homeowner can be challenging—and that’s okay! As an experienced mortgage broker in the Ottawa area, I can help you understand the best ways to set up your mortgage payments, including incorporating your property taxes. Reach out to me today to get started.