Can You Pay Your Own Property Taxes? Yes, and You Can Benefit!

Pay Your Own Property Taxes

Should you be paying your own property taxes?

We just purchased our first home.

As long as we own this home, we’re going to have to pay property taxes.

These property taxes include payments to the county, city, community college, and the local school district.

Bummer. I know.

Even worse, we live in Texas, where there is no state tax on income.

Therefore, our property tax rates are pretty high (in total, they are about 2.15% of the value of our home) to make up the difference.

How Much Are Property Taxes in Texas

This year we’re somewhat off the hook because the home has been assessed at the value of the land only, or $34,600 (that’s because they value it at the beginning of the year…and since it was just built, there was only dirt back in January). However, next year, we’ll have to pay the 2.15% times the full value of the home. Yikes!

Property Tax Escrow Account

Most people have their mortgage company escrow or collect their property taxes every month along with the mortgage payment. This is the easy way to do it, I guess. But it’s not for me.

I’d rather be responsible for this annual payment and hold my money in an online savings account until the end of the year. This way, I can benefit from keeping my money longer, and more importantly, have more control.

I did a quick calculation using youngmoney.com’s savings calculator based on owing $6000 in property taxes at the end of 2008, and here’s what I found:

Savings Calculator

Based on monthly contributions to our savings account of $500, which would earn interest of 4.10% (compounded monthly), we would have $6,135 saved by the end of 2008.  Not only will we have saved the required amount for property tax payment, but we will have earned an extra $135.  Seems worth it to me, even more so because we can automate the savings with Capital One 360 and forget about it.

Update: Rates aren’t as high as they were when I first wrote this article, so be sure to check current rates on my list of the best online savings accounts.

One Side Note

When we purchased the home, one of the closing costs that we were charged was a loan discount fee of $412. I was told we were charged this because we wanted to pay our own property taxes. We tried to negotiate out of this with no luck.

Therefore, to be fair, it will take us three years to start truly earning money off this method. We plan on staying in the house at least seven so, we’re all good there.

How to Change to the DIY Method

If you’ve been allowing your mortgage company to escrow your taxes, and you want to switch to the do-it-yourself method, I’m assuming all you’d have to do is call your lender and tell them to stop. Be aware, some lenders will require you to have 20% equity before you can do this.

Does anyone else use this method? Is there a way to earn even more interest? CDs? Tell me how you are handling your property taxes.

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Last Edited: May 13, 2013 @ 1:48 pm
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.