How Much Are Property Taxes and Insurance on a Mortgage?

Chris's $600 Surprise

My brother-in-law Chris thought he had his mortgage payment figured out to the dollar. He'd found a $400,000 house, plugged the numbers into a calculator, and arrived at $2,528 a month for principal and interest. He and his wife looked at their budget and decided it was tight but doable.

Then his loan officer sent over the Loan Estimate. The actual monthly payment wasn't $2,528. It was over $3,100.

Chris called me, confused and a little annoyed. "Did I do the math wrong? Is the bank adding hidden fees?"

Neither. He'd done the principal and interest math correctly. What he'd forgotten—like a lot of first-time buyers—is that the bank collects more than just loan payments. They also collect your property taxes and your homeowners insurance. Every month. And those two things added nearly $600 to his payment.

This is the single most common "surprise" in the mortgage process. And it's completely avoidable if you know what to expect. Let's walk through it so you don't end up like Chris.

The Four Pieces of Your Payment

Most mortgage payments are actually four payments bundled into one. The industry calls it PITI. Not the most exciting acronym, but it's worth understanding because each piece behaves differently.

The first two—principal and interest—are what you see when you type numbers into a basic mortgage calculator. The last two—taxes and insurance—are what show up later and surprise people like Chris.

The Consumer Financial Protection Bureau (CFPB) explains PITI in detail here, and it's worth a read if you want the official explanation. But the short version is: if you only budget for principal and interest, you're probably off by hundreds of dollars a month.

Property Taxes: The Part That Changes Everything

Here's the thing about property taxes that most first-time buyers don't realize: they vary wildly depending on where you live. Not by a little. By a lot.

The same $400,000 house could have an annual property tax bill of $1,600 in one county and $9,600 in another. That's an $8,000 difference every year — over $650 a month. If you're shopping across county lines or considering a move to a different state, this alone can determine whether a home is affordable.

Property taxes are set by your local government — your county, your city, your school district. They're based on your home's assessed value and your area's tax rate, usually expressed as a percentage. The Tax Foundation publishes detailed property tax data by state and county, which is a great resource for comparing rates before you buy.

A home in a district with a 1% tax rate will owe about $4,000 a year on a $400,000 house — about $333 a month. A home in a district with a 2.5% tax rate will owe about $10,000 a year on the same-priced house. That's $833 a month. Same house price, same loan, same interest rate — but $500 more per month just because of taxes.

Chris bought in a state with relatively high property taxes. His $400,000 home came with an annual tax bill of about $5,200 — roughly $433 a month. Combined with his homeowners insurance at $1,400 a year, his monthly payment jumped by over $550.

Homeowners Insurance: The Other Monthly Cost

Insurance costs also vary by location, sometimes dramatically. According to the National Association of Insurance Commissioners, the average annual homeowners insurance premium in the United States was $1,411 in 2021—but that national number hides enormous variation. In Florida, owners pay an average of $2,437 a year. In Wisconsin, it's around $780. Same kind of insurance, wildly different prices.

Why such a big gap? The answer lies in what insurance actually pays for. According to data from the Insurance Information Institute, wind and hail account for the largest share of claims—about 40% of all property damage claims from 2018 to 2022. Water damage and freezing add another 28%. Fire and lightning, despite getting most of the attention, represent about 22% of claims but come with a much higher average cost per claim—over $83,000 per fire claim, compared to about $13,500 for wind and hail. Your premium is heavily shaped by where you live and what kinds of disasters tend to strike there.

Even in a moderate-risk area, a typical annual premium on a $400,000 home might run $1,200 to $2,000—$100 to $170 a month. But if you're buying near the coast or in a wildfire zone, budget for significantly more. Our California Mortgage Calculator uses state-level insurance data to give you a more accurate estimate based on where you're looking to buy.

And that standard policy only covers so much. Here's what a lot of buyers don't realize until it's too late:

The lender requires insurance because the house is their collateral. If it burns down and you walk away, they need to recover their money. So they make sure you have coverage, and they collect the premiums through your monthly payment.

For a deeper look at what homeowners insurance covers and how to shop for it, the NAIC Home Insurance Guide is a thorough (and free) resource. It walks through everything from policy types to how deductibles work.

The Escrow Account Explained

Most lenders use something called an escrow account to handle taxes and insurance. Here's how it works.

Every month, along with your principal and interest, you send the lender extra money for taxes and insurance. They deposit it into an escrow account — basically a holding account. When your property tax bill comes due (usually once or twice a year), the lender pays it from that account. Same with your insurance premium.

For you, this means you don't have to save up for a big tax bill. It's spread across 12 monthly payments. For the lender, it means they can be sure the taxes and insurance are actually getting paid. The CFPB has detailed information on how escrow accounts work, including what happens if there's a shortage or overage.

What This Means for Your Budget

When you're trying to figure out how much house you can afford, don't just plug a purchase price and rate into a calculator and call it a day. You need to add the taxes and insurance yourself — because the calculator doesn't know where you're buying.

For Chris, that number was $3,100, not $2,528. It was still within his budget, but barely. And he was glad he found out before closing rather than after.

If you want to skip the manual math, our Mortgage Calculator includes property tax and insurance estimates based on your location. You can also use our Closing Cost Calculator to see what you'll owe beyond the down payment, or the Affordability Calculator to figure out a safe budget based on your income.

One More Thing: HOA Fees

If you're buying a condo or a home in a planned community, there may also be HOA fees. These can run from $100 a month to over $500, depending on the building and what's included — think landscaping, pools, security, or elevator maintenance in high-rises.

HOA fees don't go through your mortgage payment — you pay them separately — but they're still a monthly housing expense. A $2,500 mortgage payment plus a $400 HOA fee is really a $2,900 monthly housing cost. Lenders factor this in when they calculate your debt-to-income ratio, but it's easy to overlook when you're budgeting on your own.

If you're looking at condos or townhomes, ask for the HOA's financial statements before you make an offer. A poorly managed HOA with inadequate reserves can hit you with special assessments — surprise bills for things like roof replacement or parking lot repairs that can run into the thousands.

The Short Version

Property taxes and insurance aren't optional extras. They're baked into the cost of owning a home, and your lender will collect them every month whether you remembered to budget for them or not.

The difference between a basic principal-and-interest calculation and your true monthly cost can easily be $400, $600, even $800 a month. Knowing that before you start looking at houses will save you from falling in love with a home you can't actually afford.