Principal and interest are only part of a mortgage payment. Property taxes and homeowners insurance — often called the "T and I" in PITI — are usually collected monthly through an escrow account and can change your payment even when your rate is fixed.
Property taxes
Property taxes are assessed by local governments — counties, cities, and school districts — based on the assessed value of your home and the local tax rate. In the U.S. the average is roughly 1% of home value per year, but it varies widely: some areas are under 0.5%, others above 2%.
- Assessed value — the value the tax authority assigns to your home, which may differ from market value.
- Tax rate (millage) — set by local jurisdictions and voted on periodically.
- Exemptions — many areas offer reductions for primary residences, seniors, veterans, or disabilities.
Homeowners insurance
Homeowners insurance covers damage to your home and liability if someone is injured on your property. Lenders require it to protect their collateral. The annual premium is usually paid monthly through escrow. Costs depend on the home's value, location, coverage limits, deductible, and claims history.
Standard policies cover fire, wind, theft, and liability, but typically exclude flooding and earthquakes, which require separate policies. If you are in a flood zone, your lender will require flood insurance as well.
How escrow works
Most lenders require an escrow (impound) account for taxes and insurance. Each month, part of your mortgage payment goes into escrow; when the annual tax and insurance bills come due, the lender pays them on your behalf. This spreads large annual bills into manageable monthly amounts and ensures the bills are paid.
- You pay 1/12 of your annual taxes and insurance each month, added to your P&I payment.
- The lender holds the funds in an escrow account.
- When tax and insurance bills are due, the lender pays them from escrow.
- Once a year, the lender reviews the account and adjusts your payment if costs changed.
Why your payment can change with a fixed rate
Even with a fixed-rate loan, your total monthly payment can change because taxes and insurance are not fixed. If your property tax assessment rises or your insurance premium increases, your escrow payment goes up to cover the difference. This is called an escrow analysis, and lenders perform it annually.
Estimating these costs
When budgeting for a home, do not assume taxes and insurance stay flat. Look up the current property tax rate for the area, ask about any exemptions you might qualify for, and get an insurance quote before you commit. Our Property Tax Estimator tool lets you enter a home value and rate to see the monthly and annual impact.
Estimate Property Taxes