Homeowners are feeling the weight of surging tax and insurance costs, and first-time buyers are sometimes waking up to unpleasant surprises when they see the bill, according to a new analysis.
Property taxes and homeowners insurance costs now make up an average of 21% of monthly mortgage payments across the U.S., according to research conducted by Columbia, Missouri-based Neighbors Bank.
While much of the housing affordability discussion is focused on home prices and interest rates, tax and insurance cannot be left out of the conversation with buyers, the bank said in its look at "hidden" costs.
"These nonmortgage costs can quietly add hundreds or even thousands of dollars to monthly housing costs. As a result, many borrowers only grasp their impact once the first few payments come due," said Jake Vehige, Neighbors Bank president of mortgage lending, in the report.
The bank's analysis examined nearly 450 metropolitan markets, calculating payment amounts based on a 6.59% fixed interest rate.
The burden on first-time home buyers
First-time home buyers and others in low down payment and federal mortgage programs, in particular, may feel the brunt acutely.
As borrowers with loans backed by the Federal Housing Administration and other agencies are required by either the government or their banks to pay tax and insurance from servicing escrow accounts, they may not be fully aware of how they may change.
"Many homeowners assume their payment will stay the same each year, but even if your mortgage rate doesn't change, taxes and insurance often do," Vehige said. "They're recurring costs that need to be planned for from day one."
Data from property tax technology firm Lereta, which was cited in the study, showed only 60% of borrowers were aware of how escrow works and 45% incorrectly believed their monthly fixed-rate payments would not change. Fifty-five percent said they were surprised by changes in their payments, which occur after servicer review of assessment and insurance increases.
The Neighbors Bank analysis corresponds to other consumer sentiment research over the past few years, which point to
U.S. homeowners saw average property tax bills increase by 4.1% and 2.7% in 2023 and 2024, according to real estate intelligence provider Attom. At the end of 2024, the mean assessment stood at $4,172.
T&I shares by market
Florida as well as Illinois held a disproportionately high number of markets where taxes and insurance took the greatest portion of a monthly payment, according to the Neighbors Bank analysis.
Residents in Florida face elevated insurance costs due to extreme weather risk, while high tax rates in Illinois drive up its share.
In Pensacola, Florida, 43.6% of a homeowner's monthly mortgage bill goes to tax and insurance, leading all U.S. markets, with Decatur, Illinois, in the second spot at 37.4%. Ogdensburg, New York followed at 36.5%.
High tax and insurance bills don't necessarily correlate to home values either, the research pointed out, noting the moderate sales prices in Illinois.
On a similar note, the 9% share in Honolulu, which consistently ranks as one of the most expensive housing markets in the country, lands it at the top of the list of cities least burdened by taxes and insurance. Meanwhile, Morehead City, North Carolina also came in at 9%, followed by St. George, Utah, at 9.1%.
Several markets in Western states rank high on the least-burdened list thanks to lower property tax rates, newer housing stock and reduced climate-related insurance risk, Neighbors Bank said.
