Overview

Property tax changes—whether from a local reassessment, a change in tax rates, or new municipal levies—flow directly into your mortgage escrow account if your lender collects taxes through escrow. Lenders run an annual escrow analysis to estimate next year’s taxes and insurance, add any required cushion, and set the monthly escrow portion of your mortgage payment. A higher tax bill usually leads to a larger escrow contribution and a higher monthly mortgage payment; a lower tax bill can reduce those amounts.

This article explains how the mechanics work, how servicers calculate shortages and surpluses, what notifications you should expect, and practical steps homeowners can take to reduce surprises. The guidance below reflects consumer-protection rules (RESPA) and administrative practices current as of 2025 and is based on 15 years of financial-services experience working with mortgage-servicing issues.

Authoritative resources: Consumer Financial Protection Bureau — Escrow Accounts (consumerfinance.gov) and IRS guidance on local property taxes and tax deductions (irs.gov). For local specifics, check your county assessor’s office.

Why property tax changes matter for mortgage payments

Most mortgage servicers require escrow accounts to ensure payment of property taxes and hazard insurance. Each month the servicer collects a portion of those expected bills as part of your mortgage payment and pays the bills when due. If the taxes assessed on your property increase, that required monthly escrow deposit goes up. If they decrease, the deposit can go down.

  • Immediate budget impact: Because escrow flows through your monthly mortgage payment, tax increases raise your recurring housing cost without any change to the loan’s interest rate or principal repayment.
  • Timing matters: An assessment or tax-rate change that appears after your lender’s annual escrow analysis can still affect the next analysis and next year’s monthly payments.

How servicers calculate escrow and what triggers payment changes

A typical escrow calculation follows these steps each year:

  1. Estimate the next 12 months of property taxes and insurance.
  2. Subtract your current escrow balance (what’s already in the account).
  3. Add a required cushion (the maximum cushion allowed under RESPA is two months’ escrow payment — see CFPB guidance).
  4. The annual escrow requirement (step 1 + cushion − balance) divided by 12 determines the monthly escrow portion of your mortgage payment.

If the calculation produces a shortage (not enough in the escrow account to cover the projected bills), your servicer will either require a lump-sum payment to make up the shortfall or spread the shortage over the new monthly escrow payments. If there’s a surplus above the allowable cushion, you may receive a refund or a credit toward future payments. (Consumer Financial Protection Bureau: escrow account rules and annual analysis.)

Example calculation

  • Current annual property tax bill (before change): $3,125
  • New annual tax bill after reassessment: $3,750
  • Increase: $625
  • Current escrow balance: $500
  • Required cushion (2 months of escrow): assume monthly escrow needed = $312.50 (after change), so cushion = $625

Annual escrow requirement = $3,750 (taxes) + $625 (cushion) − $500 (balance) = $3,875.
Monthly escrow deposit = $3,875 ÷ 12 ≈ $322.92.
If prior monthly escrow was $260, monthly mortgage payment increases by about $62.92.

This simplified model shows how even a modest tax increase can push monthly payments materially higher.

Notifications and timing: what to expect from your servicer

By law, servicers must perform an annual escrow analysis and notify you of any payment change. The notice should explain the reason (e.g., higher taxes), the new monthly escrow amount, how the servicer calculated the change, and any options you have for covering a shortage.

Common timelines:

  • Escrow analysis frequency: typically annually, though some servicers may project more often.
  • Effective date: changes generally take effect in the month following the analysis period, but exact timing varies by servicer.

If you don’t receive a notice but your tax bill changes, monitor your mortgage statement and contact your servicer. Keep copies of tax bills and assessment notices to compare with your servicer’s figures.

Options homeowners have when property taxes go up

If your mortgage servicer raises the monthly escrow portion because of higher property taxes, you usually have several options:

  1. Pay the shortage in full. This minimizes the increase to your monthly payment because the servicer won’t need to spread the shortage over 12 months.
  2. Pay the shortage in installments. Most servicers allow spreading the shortage across the next 12 months, which softens the immediate hit but keeps your monthly payment higher longer.
  3. Appeal the tax assessment. If you believe the reassessment is incorrect, file an appeal with your county assessor. If successful, a reduced assessment will lower future taxes and may trigger an escrow recalculation and refund.
  4. Ask for an escrow waiver (rare and typically only for investors or high-equity borrowers). Some lenders allow escrow waivers for qualified borrowers, but many do not—and some lenders charge a fee. See lender disclosures and your mortgage contract.

Practical steps:

  • Review the servicer’s escrow analysis line-by-line and compare the taxes used in the calculation to your county tax bill.
  • If the servicer used an outdated amount, provide documentation (final tax bill or assessor notice) and request a recalculation.
  • If the increase is one-time (e.g., a special assessment) vs. ongoing (tax rate increase or permanent reassessment), plan differently—one-time spikes may require a lump-sum or short-term payment plan, while permanent increases should be built into your long-term budget.

Appealing assessments and reducing future escrow impacts

If a reassessment caused the tax increase, you can usually appeal to your county assessor or board of equalization. Common grounds for appeals include:

  • Comparable sales show lower market value than your assessed value.
  • The assessor used incorrect property data (square footage, number of bedrooms, condition).
  • Recent sales or market data indicate a decline in values.

Filing deadlines and procedures vary by jurisdiction. Check your local assessor’s website for forms, deadlines, and required evidence. If an appeal reduces your tax bill after your servicer paid the larger bill, the servicer should adjust your escrow account and issue a refund if applicable.

Common homeowner mistakes and how to avoid them

  • Assuming taxes won’t change. Local budgets, bond measures, and reassessments can change taxes quickly—budget as if taxes could rise.
  • Ignoring escrow notices. Read every escrow analysis and tax bill. Not responding to errors in the servicer’s calculation can cost you money.
  • Not keeping documents. Keep your property tax bills, assessment notices, and servicer correspondence. These are essential when you dispute figures or appeal assessments.

When an escrow shortage becomes a solvency risk

Repeated large tax increases can create recurring shortages and raise monthly payments enough to affect your housing affordability. If you cannot manage the higher payment, contact your servicer to discuss options early—some servicers offer hardship accommodations or alternate payment schedules. If you’re at risk of default, consult a HUD-approved housing counselor (find via consumerfinance.gov).

Interlinking resources on FinHelp.io

Professional tips (from 15 years in financial services)

  • Anticipate increases when neighborhoods are improving or when local governments pass bond measures—plan a 5–10% buffer in your housing budget.
  • Ask your servicer for a copy of the escrow analysis worksheet; it should list projected tax bills and the cushion used.
  • If you appeal an assessment, continue paying taxes and maintain documentation of your appeal. Do not stop escrow payments while disputing a tax amount.

Frequently asked questions (brief)

  • Will my mortgage interest rate change if property taxes increase? No—property tax changes affect only the escrow portion of your payment, not the loan’s interest rate unless you enter into a loan modification.
  • Can my servicer raise my mortgage payment without notice? No—servicers are required to provide an annual escrow analysis and notice of changes; if you believe you didn’t receive proper notice, contact your servicer and file a complaint with the CFPB.

Final notes and disclaimer

This article is educational and reflects common mortgage-servicing practices and federal consumer protections (as summarized by the CFPB). For specific questions about your mortgage, escrow account, or tax assessment, contact your mortgage servicer, county assessor, or a licensed financial or tax advisor. Regulations and local procedures can change; verify deadlines and rules with your local tax authority.

Authoritative sources: Consumer Financial Protection Bureau—Escrow accounts and mortgage servicing (https://www.consumerfinance.gov/) and IRS guidance on local property taxes (https://www.irs.gov/).