Property tax
What is property tax?
Property tax is an annual levy by local government based on your home's assessed value. It is normally collected monthly through escrow and paid on your behalf.
What it means in practice
Effective rates vary enormously — well under 0.5% of value in some US states and above 2% in others. On the same home and same loan, that difference can exceed several hundred dollars a month.
Assessments can be reset after a sale or after improvements, so the previous owner's tax bill is not always a reliable guide to yours.
Because property tax is identical across every refinance scenario for the same home, it does not change which option is cheapest — but it very much changes whether the payment fits your budget.