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How Refinancing Your Home Can Impact Your Property Taxes

By timhoughten
Thursday, October 15, 2020

Thinking about refinancing the mortgage on your property on Long Island? How might it impact your property taxes for better, or worse?

Refinancing your mortgage loan or taking out a loan on a paid off property could be a great financial move right now. However, if you aren’t careful it could also impact your property taxes in ways you aren’t anticipating. 

Here are some of the ways it can change things…

A Bigger Mortgage Can Mean A Bigger Tax Bill

You might have been one of those who have skated under the radar with your home value and equity growing, but without the tax assessor’s office raising your property’s assessed value and bill. If you supersize the mortgage on your home to take out a lot of cash they may not be able to ignore that. Just as recording a new purchase and mortgage triggers higher tax bills on a property too.

Financing Improvements Can Increase Your Assessed Value

With all the events of 2020 many homeowners are doubling down on their properties and planning to stay in place longer. For many that means they crave more space, more bedrooms and suites, more security measures and a refreshed style. Those may all be smart moves considering what we’ve been through and could see in long term work and lifestyle changes. However, home improvement loans and expanding your square footage or adding bedrooms and bathrooms also increases the value of your property, and the taxes the county will want from you.

Taxes Must Be Paid Up To Date

No lender is going to want to extend you more debt or risk their capital if you haven’t paid up your property taxes. Expect to have to bring all taxes up to date, as well as association fees, insurance premiums and paying off any outstanding liens against the property. That may mean you might need to bring cash to the closing or take out a bigger loan to finance those debts.

Escrows

Refinancing may mean lumping together or separating your property taxes from your monthly mortgage payment. If your new lender wants monthly escrows for taxes and insurances, you’ll make a higher monthly payment, and they are supposed to distribute that money when bills are due. If they don’t collect escrows, your monthly payment may be lower, but you have to save that cash throughout the year so that you have enough to pay when the bills come out. This can give you more flexibility throughout the year, but it does require more financial discipline too.

Financial Flexibility

Others may just want to refinance to reduce their interest rate and payments. A variety of factors could be working in your favor to obtain a lower mortgage rate right now. You may also lower your payment by extending the term of your mortgage, for example, from 15 to 30 years. This can give you more financial flexibility and help you stay on top of your taxes too. 

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