Why Property Taxes Matter to Lenders
Property tax balances are a top-priority debt on your land title, which means they must be paid before any other claims. Lenders require proof of property tax status to ensure no arrears, as municipalities always get paid first.
Your Options for Paying Property Taxes
In Ontario, you typically have three ways to pay property taxes:
- Lender Payments: Your lender collects property taxes with your mortgage payment and pays your municipality.
- Instalment Tax Bills: Taxes are split into two bills, each requiring 2-3 payments.
- Pre-Authorized Monthly Payments: Some municipalities offer a monthly instalment plan, though there may be restrictions on when you can start.
Pro Tip: If your lender is handling payments, ensure you’re not responsible for the current tax bill during transitions like new home purchases or switching lenders. Timing gaps can lead to unexpected expenses.
Pros and Cons of Lender Payments
Lender-managed payments seem convenient but often involve over-collecting, which reduces your available cash. In cases of under-collection, your lender will still cover the tax bill but increase your future payments to make up for it. First-time homeowners may find this method easier for budgeting, but it’s important to know the cycles to avoid surprises.
Switching or Refinancing with a Tax Account
If you switch or refinance, know your lender’s policy on tax account balances. Most will apply it to your principal balance, meaning you’re on the hook for the next tax bill. Some lenders may return this balance, but you’ll need to request it before closing.
Managing Property Taxes Independently
Some lenders opt out of managing property tax payments, giving homeowners more control. While this adds responsibility, it can help you avoid overpaying and ensure financial flexibility.
Navigating property taxes can be complex, but understanding your options and how lenders handle these payments can make all the difference.
