How Property Taxes Affect Your Monthly Mortgage Payment in Texas

Texas has some of the highest property tax rates in the United States. In fact, in 2024, the Lone Star State had the seventh highest property tax rate in the country, with an average effective rate of around 1.40%. Translated into a simple dollar amount, that means if you own a home appraised at $300,000, you’d pay about $4,200 in property taxes per year. 

While tax rates vary by exact location, the rate will impact how much you pay to live in your home. Understanding the relationship between property tax and mortgage costs is key to budgeting for homeownership.

In this article, we’ll explore how Texas property taxes factor into your monthly mortgage payment with the help of one of our very own Mortgage Loan Originators, Corey Griffin.  We’ll also look at how local tax rates impact affordability, how escrow works, and why taxes can cause payments to change over time.

What are property taxes?

Texas has some of the highest property tax rates in the United States. In fact, in 2024, the Lone Star State had the seventh highest property tax rate in the country, with an average effective rate of around 1.40%. Translated into a simple dollar amount, that means if you own a home appraised at $300,000, you’d pay about $4,200 in property taxes per year. 

While tax rates vary by exact location, the rate will impact how much you pay to live in your home. Understanding the relationship between property tax and mortgage costs is key to budgeting for homeownership.

In this article, we’ll explore how Texas property taxes factor into your monthly mortgage payment with the help of one of our very own Mortgage Loan Originators, Corey Griffin.  We’ll also look at how local tax rates impact affordability, how escrow works, and why taxes can cause payments to change over time.

How does property tax work?

There are three key components to any property tax: your home’s appraised value, the amount of that value you can exempt from taxes (such as the homestead exemption), and the local tax rate. To arrive at your annual property tax bill, the formula is: 

(Appraised Value – Exemptions) × Combined Tax Rates / 100

“Your property tax bill isn’t just based on one number,” Griffin explains. “Your home’s value, the exemptions you qualify for, and the tax rates set by your local taxing entities all play a role. Any time one of those pieces changes, the amount you owe in property taxes can change, too.”

Your local appraisal district determines your property’s appraised value and processes exemptions, while local taxing units, such as your city, county, and school district, set their own tax rates. These decisions happen at different points throughout the year, which is why it helps to understand the property tax calendar.

• January 1: On the first day of each year, the appraisal district sets property values for all homes and properties within its jurisdiction.
• Mid-April: Keep an eye on your mailbox in April for the notification of your home’s appraised value. As a note, if your home qualifies for the homestead exemption (i.e. it’s your primary residence), your home’s net appraised value cannot increase more than 10% year over year.
• May 15: If you think your home is overvalued by the county, you can submit a protest to your local appraisal district by May 15, requesting your home’s assessed value be lowered.
• August/September: Each year, the local taxing units such as the city, county, school district, and any other special districts (for example, Austin Community College in Austin), set tax rates based on their budgetary needs.
• October: Once tax rates are set and appraised values have been agreed upon, the appraisal district mails your tax bill. 
• January 31: The following year, your tax bill is due by the end of January. This is the official due date, and property tax payments must be paid on time to avoid penalties.

Griffin reminds homeowners that property taxes aren’t something that they should only think about when the bill arrives. “Paying attention throughout the year gives you an opportunity to review your appraised value, make sure you’re receiving the exemptions you qualify for, and understand what’s contributing to your final tax bill,” he says.

How do you pay property taxes?

There is more than one way to pay your property taxes, and the method you choose will vary based on your financial situation. 

Over Time with an Escrow Account

For homeowners with a mortgage, the most common way to pay your property taxes is using an escrow account. With an escrow account, every time you make a monthly mortgage payment, your lender also collects a pro-rated amount to be used toward your next tax bill. This setup acts as an escrow account to pay both your taxes and, in many cases, homeowners insurance, meaning these costs are often included in your total housing payment. 

For example, if you owe $6,000 in annual property taxes, you would make escrow payments of $500 per month into your escrow account. 

Then, when property taxes come due in January, your lender automatically disperses what you’ve saved in your escrow account to the tax office. You don’t have to worry about saving up on your own or remember to pay the bill before the due date.

Annual Lump Sum Payment

If you prefer to manage your own property tax payments, you also have the option to pay the full tax bill directly to the taxing entity. When you receive your tax bill in October, you can write a check to the appraisal district, or there is usually an option to pay online.

With this method, your monthly mortgage payment will be reduced. However, you have to save enough on your own to cover your tax bill and ensure it is paid on time. 

Do property taxes impact home affordability?

Yes, property taxes can impact the price of the home you’re able to afford. 

In the state of Texas, property tax rates can range drastically from county to county, and this variation can affect the price of the home that fits in your budget. For instance, a $250,000 property in Borden County—with the state’s lowest effective tax rate hovering around 0.22%—would incur an annual property tax of $550 per year. That same property in El Paso County, with a 1.80% property tax rate, would require an annual property tax payment of $4,500. Translated into monthly escrow payments, that difference between $46 and $375 per month in tax payments can significantly impact affordability.

Griffin has one simple piece of advice if tax rate is a concern: “Before you purchase a home, do a quick search of the estimated property tax online. Most county tax offices have online tools that you can use to see a breakdown of your estimated property tax.”

Can my mortgage payment change over time due to property taxes?

Yes, mortgage payments can change over time if you pay your taxes using an escrow account. 

Assuming you have a fixed-rate mortgage, your principal mortgage payment will remain steady even if interest rates change in the broader market. However, the appraised value of your home may change. Additionally, the amount you are allowed to exempt from taxes with a homestead exemption is also subject to change. Finally, the property tax rate itself may vary, as local government authorities may adjust rates based on community needs.

All this means that your monthly mortgage payment can go up—or down—when one of the variables in the tax equation changes, reinforcing the close connection between property tax and mortgage costs.

Planning Ahead for Property Taxes and Mortgage Payments

“Understanding how property tax and mortgage costs work together is essential for making informed decisions as a homeowner in Texas,” Griffin reminds homebuyers. From estimating your monthly mortgage payment to planning for your annual property tax bill, staying aware of how these expenses interact can help you budget more effectively and avoid surprises. Whether you choose to use escrow accounts or manage your own property tax payments, the key is to stay informed, plan ahead, and ensure your taxes are paid on time each year.