Combined Property Tax & Mortgage Payments: Convenient or Costly?
Updated: May 10
If you’re a Canadian homeowner paying your property taxes and mortgage in one single payment, you might be paying more than you should.
There’s some advantages to paying only one bill- but it’s crucial that you evaluate your situation carefully and make a sound financial decision. Unbundling your property tax and mortgage payment co
uld mean opportunities for your money to earn higher interest rates, and who doesn’t want that?
In this blog, we’ll explain the pros and cons of combining your property tax and mortgage payment, so you can make the best money-making decision for you.
Why lenders may request combining property taxes & mortgage payments
By law, property taxes must get paid before a mortgage.
So, if you are behind on your property taxes, the government can go after the lender for the tax amount owed, and that would leave you behind on your mortgage payments.
If this happens, mortgage lenders are at risk of not getting their investment back. That’s why some lenders include a part in the mortgage agreement that indicates mortgage payments and property taxes must be paid together, to them. Then they pay your portion of property taxes to the municipality.
It’s important to note this isn’t a default, and everyone’s financial picture is different. Lenders evaluate situations on a case by case basis.
When you work with Sylvia Ho Mortgages, we advocate on your behalf and give you all the options we possibly can.
Pros & Cons of Combined Payments
Easy - Your lender takes care of the payments, so it’s off your mind with no chance of late fees.
One Less Bill - You won’t have to remember to pay your property taxes.
Simpler Budgeting - Since the amount is estimated in advance and combined with your mortgage payment, you don’t need to set aside a separate amount.
Risk of OVERPAYING - If your lender overestimates the property tax amount for the year, you risk overpaying and leaving money on the table.
Risk of UNDERPAYING - If your lender underestimates the property tax amount for the year, you will be in a deficit with your lender and have to pay interest on the difference.
Less Control - You’re at the mercy of the lender’s estimates. They may calculate too much or too little, which affects your cash flow.
Lost Opportunity for Earning Interest - THIS is important! Why should your hard-earned money sit in escrow with your lender, when it could be earning you interest all year?
Your Action Plan
If you’re in the market for purchasing your first home or securing your first mortgage:
Talk to Sylvia about property tax payments and see what options are available to you.
We strongly recommend that you pay your property taxes on your own and not through your lender. It’s simple - more money in your pocket means more options. When you work with Sylvia, she’ll advocate for you as a client and always take the stance that property taxes should be paid by her client, and not by the lender.
If you have a mortgage and are paying property taxes with the lender, take these 4 easy steps:
Contact your lender and confirm whether you are in a positive or negative status with your tax payments.
If positive: ----- Ask the lender to return the surplus money to you, and let them know you’ll be paying taxes on your own going forward.
If negative: ---- Pay the money owed and let the lender know you are paying on your own for future payments.
Seek out your city’s property taxes pre-authorized debit payment program. We’ve included several municipality links below, but it can also be found with an easy Google search, for example: “Mississauga property taxes pay on your own”.
It’s as easy as choosing a payment plan, completing a form and providing a void cheque.