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Why Your Mortgage Payment Can Still Go Up—Even if It’s a Fixed Rate

Friday, July 20, 2018   /   by Andy Mandel

Why Your Mortgage Payment Can Still Go Up—Even if It’s a Fixed Rate

When buying a home, make sure you factor in your future property tax bill when calculating your mortgage payment—not what it is right now.

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When buying a home, you want to make sure you can afford the mortgage payment that comes along with it, because you don’t want to end up “house poor.”


To know what you can afford, it’s important that you factor in what you’ll pay in property taxes. There’s a difference, though, between what the seller paid in property taxes for the home and what you’ll pay.


Let’s say you’re buying a $400,000 home. In our area, property taxes constitute about 1.75% of a home’s purchase price. This means your property tax for that $400,000 home will be roughly $7,000 a year. If the seller of that home bought it 15 years ago for $200,000, though, their property tax bill would have been half of what yours will be.


Why is this? When you get pre-approved for a mortgage and your lender tells you that your mortgage payment will be a certain amount, they factor in the tax bill for the current year. In this example, the seller would have only paid $3,500 a year for their property tax. Since your tax bill is 1.75% of the home’s purchase price at the time of purchase, next year you’ll pay almost double the rate of current property taxes. In this example, that difference equates to about $300 extra per month.


When buying a home, make sure you can afford your new tax bill when calculating the mortgage payment. The home you purchase is supposed to be a vehicle for the financial freedom and flexibility you need to do other important things in life, and if you’re trapped in a mortgage you can’t afford, you won’t have that freedom and flexibility.


If you have any more questions about knowing what you can afford when buying a home or you have any other real estate needs I can assist you with, don’t hesitate to reach out to me. I’d love to help you.

 

  buyer

The Mandel Team at Re/Max
Andy Mandell
9615 Westview Drive
Coral Springs, FL 33076
954-610-0563

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