Mortgage Research Network Podcast

Just a note about today's episode: Neighbors Bank, which we mention, is an affiliate of Three Creeks Media, which operates Mortgage research network. Now, on with the show.

Welcome to the Mortgage Research Network Podcast. We bring you the latest mortgage and real estate news 3 times a week. The audio is AI generated, but content is fact-checked by me, Tim Lucas, editor of MortgageResearch.com and a former mortgage professional. And with me is Craig Berry, a mortgage originator with 25 years experience. Craig, here’s a surprising fact. In some parts of the U.S., more than a third of a homeowner’s monthly mortgage payment doesn’t even go toward paying off the house itself. Instead, it’s eaten up by property taxes and insurance.

That’s a pretty shocking number. I think most people assume their mortgage payment is mostly about principal and interest, but this really flips that idea on its head.

Exactly. And it’s not just a small shift either. Jake Vehige, the president of mortgage lending at Neighbors Bank, pointed out in a recent study that these costs—property taxes and homeowners insurance—are taking up a bigger and bigger share of housing payments. In some areas, it's over a third, and in extreme cases, close to half of what people pay every month.

That’s a huge chunk of change. So, what’s driving this? Is it just that taxes and insurance are getting more expensive, or is there something else going on?

Well, it’s a mix of things. For one, property taxes are often tied to the value of your home, and as home prices have skyrocketed in recent years, taxes have followed suit. Then there’s insurance, which is heavily influenced by where you live. For example, in Florida, insurance premiums are sky-high because of the risk of hurricanes. In fact, in the Pensacola metro area, taxes and insurance make up 43.6% of the average housing payment. That’s nearly half!

Wow, that’s a lot! So, in Pensacola, what does that actually look like in dollars?

Great question. Neighbors Bank ran the numbers based on a 30-year fixed-rate mortgage at 6.59% interest. For the average homeowner in Pensacola, the monthly payment is $2,714. Out of that, $1,183 goes to taxes and insurance alone. That’s money that doesn’t touch the principal or interest on the loan—it’s just the cost of owning property in a high-risk area.

That’s a tough pill to swallow. And it’s not just Florida, right? Other places are feeling this too, but for different reasons?

Absolutely. Take Decatur, Illinois, for example. There, the issue isn’t high insurance premiums—it’s high property taxes. Illinois relies heavily on property taxes to fund local services, so they’re much higher than in other states. According to the Lincoln Institute for Land Policy, 40% of all local government revenue in Illinois comes from property taxes, compared to a national average of 30%.

That’s a pretty big gap. So, even if you’re not in a disaster-prone area, you could still end up paying a fortune in taxes depending on where you live.

Exactly. And that’s why it’s so important for people to look at the full picture when they’re buying a home. It’s not just about the price of the house or the interest rate on your mortgage. You’ve got to factor in these other costs—taxes and insurance—because they can really add up.

So, what can people do to avoid getting blindsided by these costs? Are there certain areas where taxes and insurance are more manageable?

Well, Neighbors Bank suggests looking at states with lower disaster risks and less reliance on property taxes. They mention Utah, Colorado, and Nevada as examples. But even those places aren’t immune to affordability challenges. For instance, Nevada used to be known for its cheap housing, but in recent years, it’s become a symbol of America’s struggle with high costs—especially in Las Vegas.

That’s interesting. So, even in states that are supposed to be more affordable, you’ve still got to do your homework and really dig into the numbers.

Exactly. And here’s another surprising tidbit: Honolulu, Hawaii, actually has the lowest property tax and insurance burden in the entire country as a proportion of housing costs. But, of course, home prices in Hawaii are notoriously high, so that skews the calculation a bit.

You know, that's an interesting fact and it makes a lot of since given the high home prices there. But it still goes to show how much these costs can vary depending on where you live.

Totally. And it’s not just about where you live—it’s also about being prepared. Neighbors Bank recommends getting an insurance quote before making an offer on a home and reviewing property tax trends in the area. These costs can change every year, and they almost always go up.

That’s a really good point. Even if you have a fixed-rate mortgage, which keeps your principal and interest payments the same, you’re still at the mercy of the government when it comes to property taxes, and insurance companies when it comes to premiums.

Exactly. And that’s why it’s so important to look at the whole PITI amount—Principal, Interest, Taxes, and Insurance—before making a decision. You don’t want to get caught off guard by rising costs after you’ve already moved in.

Yeah, home affordability is such a hot issue right now, and for good reason. It’s not just about the price of the house anymore. It’s about all these other factors that can add up quickly and make a big difference in your monthly budget.

Absolutely. So, if you’re in the market for a home, do your homework. Look at the whole picture, not just the sticker price. And remember, those hidden costs can really add up. That's about all the time we have for this topic, but we go into even more detail on the site. For more, search "hidden housing costs" at Mortgage research.com. We'll see you next time on the Mortgage Research Network Podcast.