This Homeownership Expense Could End Up Costing More Than Your Mortgage

Don't get caught off guard by this huge expense.

When purchasing a property, many homeowners focus on how much their mortgage will cost them. This makes a lot of sense, since a home loan is the most obvious expense you'll incur -- and since you'll need to shop around and apply for a mortgage to move forward with buying.

But the principal and interest you pay to your lender in exchange for the money to purchase a property is far from the only expense you'll incur after you're settled in your house. In fact, depending where you live and how much you borrowed, it's very possible there could be another even larger expense you're left with: your property tax bill.

Property taxes could exceed your mortgage payment

Property taxes are charged by state and local governments and they can cost a small fortune depending on where you live and what your home is valued at. They are usually assessed at a percentage of what your property is worth, and governments that impose them have the ability to increase them over time.

The problem is, if you live in an area that has high property taxes or if your home's value increases substantially after you buy, these taxes can end up costing you more than the amount you owe in principle and interest on your home loan. That's especially true if you make the responsible choice by making a large down payment and taking out a low mortgage relative to what your property is worth.

Property taxes also don't go away once you pay off your home loan. Even after you've fully repaid the bank the entire amount you owe, you will have to continue to pay property taxes for the duration of the time you own your property. As a result of the fact that these taxes are a lifetime commitment you're making, the chances your property taxes will end up costing you more than your loan are even higher over the long-term.

Pay attention to property taxes before you buy

Sadly, many people don't take the time to research these taxes before they start looking for a home and end up surprised by the high costs. You'll most likely discover this issue when you go to finalize your home loan because mortgage lenders sometimes add property tax payments onto your monthly bill (and then put the money into a special escrow account that they use to pay your taxes for you). Lenders also consider property taxes in determining how much you can afford to borrow.

By that time, however, you may have your heart set on a property and be willing to absorb the extra costs -- if you have a high enough income. And once you've found a property you like, it's easy to focus only on whether monthly payments are within reach and not consider the total amount property taxes can cost you over time.

If you don't want to end up with huge tax bills for the entire time you live in your house, consider making it a priority to research low-tax areas near where you live. Or if you have to accept higher property taxes to live in your preferred area, be sure to take these expenses into account and perhaps consider buying a smaller house -- with a lower tax bill -- even if the mortgage for a larger one seems within reach.