Glossary
Property Tax
A property tax is a municipal levy on property ownership, based on assessed value and the local rate, often collected with your mortgage payment..
A property tax is a municipal tax on the ownership of real property, calculated from the assessed value of a home and the local tax rate, and it is commonly collected as part of your regular mortgage payment. In Canada, property tax is levied by the municipality — or in some areas a rural district or provincial authority — where the home is located, not by the federal government or by your lender.
How property tax reaches your mortgage payment
Because unpaid property taxes can become a lien on the property that ranks ahead of the mortgage, lenders want assurance the bill gets paid. Many mortgages therefore use a tax account — sometimes described as a PITH payment, where principal, interest, taxes and heating are bundled into one instalment. The lender collects a portion with each payment, holds it, and remits the full amount to the municipality when instalments come due.
Estimating the amount can be tricky: the lender usually starts from the previous owner's tax bill and may adjust after the first year. If the estimate was too low, you may see a shortfall to make up; if it was too high, a surplus or credit.
Why it matters to borrowers
- Affordability: lenders include property tax in the housing cost used for the Gross Debt Service Ratio (GDS), so a large tax bill can reduce how much mortgage you qualify for.
- Beyond the mortgage: municipal taxes generally continue for as long as you own the property, even after the mortgage is paid off.
- At closing: the seller's and buyer's shares of the year's tax are divided on the statement of adjustments, which is separate from land transfer tax paid to the province.
Paying it yourself vs. through the lender
Some borrowers prefer to pay the municipality directly, often in instalments, to keep the funds in their own account and control cash flow. Others prefer the convenience of the lender handling it, since a missed municipal bill can attract penalties or, eventually, a tax sale.
Run the housing cost through a mortgage payment calculator and check the true cost of home ownership guide to see where taxes sit in your budget. Because rates are set locally and change with assessments, confirm the current figure with your municipality.
Frequently asked questions
Are property taxes included in my mortgage payment in Canada?
Often, yes. Many lenders bundle property tax with principal and interest through a tax account, sometimes called a PITH payment. Others let you pay the municipality directly in instalments. Whether a tax account is required depends on the lender, the loan-to-value ratio and your province, so confirm the arrangement before closing.
What happens if I don't pay my property tax?
Unpaid property taxes are a charge against the property, and the municipality can add penalties and interest. Because a tax lien can rank ahead of a mortgage, your lender may pay the arrears and add the amount to your mortgage balance. In serious cases, municipalities can eventually sell the property to recover taxes.
How is property tax calculated?
A municipality multiplies the assessed value of your home by a tax rate, often called a mill rate, set annually to fund local services such as roads, water and emergency services. Assessment is handled by a provincial or regional assessment body. Rates, assessment cycles and rebate programs vary widely by province and municipality.
Sources
Related terms
- Gross Debt Service Ratio (GDS) — The share of gross household income that goes to housing costs — mortgage principal and interest, property taxes, heating, and half of condo fees — commonly capped at 39%.
- Closing Costs — Closing costs are the one-time fees, taxes, and charges paid on top of a home's purchase price, separate from the down payment.
- Statement of Adjustments — A Statement of Adjustments is the closing document that lists the amounts each party to a property transaction owes or is owed, fixing the final cash balance.
- Land Transfer Tax — A provincial tax on transferring property title, paid by the buyer at closing and calculated as a percentage of the purchase price.
- Strata Fee — A strata fee is a monthly payment owners make to a strata or condominium corporation to cover shared building costs and common expenses.