Because the current interest rate environment is so conducive to refinancing, a concern that some have about taking action stems from confusion related to how their property taxes are determined, and specifically the question, “Will refinancing cause my property taxes to go up?” It goes without saying that nobody wants to save money via refinance, only to see it evaporate in the form of higher real estate taxes. But is this a real threat? Or is it safe to assume that simply by refinancing you would not see a change in your tax basis?
Our answer must first address, well, the address — of the home, that is. Since I’m a licensed loan officer in the state of California, working out of an office in Marin County, I’m only going to view this topic through my designer sunglasses. In California, properties are assessed to market value when they change ownership, and change of ownership does not typically happen in a refinance. So if you purchased a home for $500,000 in 2015, and it appraises for $650,000 in 2020 when you obtain your refinance appraisal, the county assessor is still working off your original assessed value as far as your tax basis is concerned. Behind the scenes is a more complex calculation that has to do with changes to the ad valorem portion of your tax bill, adjusted by the lesser of a 2% annual increase OR the rate of inflation, as dictated by Proposition 13. If you have questions about how to interpret your tax bill, give me a call or send me an e-mail any time and we’ll review it together. But again, the incremental adjustments to the original basis prevail here and not a jump to the appraised (or market) value at the time of refi.
“But wait!” you say. “My tax bill really did go up when I last refinanced!”
OK — let’s look at this a little closer. We know that a refinance alone would not usually trigger a reassessment, but are there some things that could cause a fluctuation in the amount of tax you’ve been paying? At times in the past, and especially during the downturn in 2008 through 2012, some homes were eligible for a temporary reduction in tax rate. Those will revert back to their regular basis with rising values, though this may seem disconnected and cause one to think the property tax rate has been reassessed. But the most common culprit is an escrow account for taxes and insurance. Adjustments by your loan’s servicer that are required to maintain a sufficient balance might show up as increases to your PITI payment. Both of the above examples could have coincided with your refinance and they may have changed your tax payment amount, but they would not have been a result of the refinance itself.
I realize that property taxes are a significant component of your total monthly housing payment. After all, I pay them too! So if you’re thinking about refinancing to get into better terms or a lower payment, and you have been reluctant to do so because you feel a mortgage lender’s appraisal and process could trigger an increase in your property tax bill, you can step back from the ledge and take a deep breath. Refinancing, in and of itself and the vast majority of the time, does not cause your property taxes to increase in California.
Eureka! I have found it,
Rob Spinosa Senior Vice President of Mortgage Lending Guaranteed Rate 415.367.5959 Cell/Text rob.spinosa@rate.com NMLS: 22343
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
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