Everyone seems so happy to hear that the values of homes are rebounding. Few people seem to be talking about the impact to their property taxes. I am planning now for a major increase in my monthly mortgage payment when the tax assessor takes a fresh look at homes in my area.
According to a recent article by CNNMoney, home prices were recently up 12.3 percent compared to last year. The National Association of Realtors also reported that previously-owned homes are selling at a faster pace as demand increases and the supply of foreclosures decreases. While experts talk about how the improvement in real estate is good for the overall economy, I am focused more on how it will actually affect my budget.
Getting used to lower property taxes
My husband and I were getting used to lower property taxes. We purchased our new construction home in 2005. In 2006 when the housing market peaked, we paid about $3700 in property taxes. Gradually our property taxes decreased to about $3,500 in 2007; $2,700 in 2008; $2,000 in 2009 and $1,900 in 2010. In 2011 and 2012, they decreased just slightly as the housing values stabilized. Based on the home values tracked by Zillow, I'm anticipating our taxes will rise to the 2008 levels.
Changing our mortgage payoff timeline
If our property taxes rise substantially, it will affect how quickly we can pay off our mortgage. At this time, I can pay an extra $500 toward our mortgage every month so that our home will be paid off in 8 more years. With the extra property tax burden, our mortgage payoff timeline may change by as much as one year. I'm estimating our property taxes might rise as much as $100 a month or about $1,200 a year.
Affecting our retirement plans
Higher property taxes will also affect our expenses in retirement. Since we have a 15-year fixed rate mortgage, we will have it paid off before we retire. However, I was expecting to only have to come up with about $200 a month to cover property taxes and insurance. With the value of my home going up, I could have much higher property taxes by the time I retire. If my home even just recovers to what I originally paid, I'm looking at property taxes of about $300 a month, not including insurance. If the value goes up any further, I could be looking at property taxes that are similar to what I used to pay in rent.
The fact that housing values are recovering means more people who used to be underwater on their mortgages can more easily sell their homes and move. However, for the rest of us, it means an increase in our mortgage or higher property tax bill at the end of the year, depending whether the taxes are included in an escrow account. For me, it may take longer to pay off my house. I'm just glad we locked in at 2.75 percent interest rate while we could since our refinance savings offsets the higher property taxes.
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