The hidden costs causing monthly housing payments to rise

The hidden costs causing monthly housing payments to rise

When people think about buying a home, the focus is on price, down payments, and the interest rate. But a growing share of today's housing payment isn't going toward building equity at all. In many U.S. metros, property taxes and homeowners insurance can consume more than one-third of the average monthly mortgage payment — and in some cases, nearly half.

These non-mortgage 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.

Using the most recent data whenever possible, Neighbors Bank examined housing affordability by measuring how much property taxes and homeowners' insurance contribute to the average monthly mortgage payment across U.S. metros.

This study finds that in many U.S. metros, property taxes and homeowners insurance now consume a significant share of the average monthly mortgage payment.

Key Highlights:

* On average, taxes and insurance now account for 21% of homeowners' monthly mortgage payments across U.S. metros.

* In Pensacola, Florida, property taxes and homeowners insurance account for 44% of the average monthly mortgage payment. That means nearly half of the typical homeowner's payment in that metro goes toward costs that do not reduce the loan.

* Honolulu ranks first for the lowest share of monthly payments going to taxes and insurance despite being one of the most expensive housing markets in the U.S.

How Property Taxes and Insurance Shape Monthly Affordability

A mortgage payment consists of principal, interest, taxes and insurance (PITI). In many cases, taxes and insurance are bundled into escrow accounts, meaning borrowers pay them as part of their mortgage payment, rather than in annual lump sums. Escrow is common for mortgages with low or no down-payments, such as government-backed programs like FHA, VA, and USDA.

This means many first-time and low down-payment buyers (who often have these costs bundled into their monthly payments) are more likely to feel the pressure of them consuming a growing share of their total mortgage.

Escrow Means Monthly Payments Can Still Change

A fixed-rate mortgage doesn't mean a fixed payment. Servicers conduct an annual escrow analysis, reviewing updated property tax assessments and homeowners insurance premiums to determine whether the current escrow payment is sufficient. If costs rise, monthly payments rise with them.

Survey data from Lereta collected in December 2024 suggest that many homeowners are caught off guard by these increases. According to their latest Annual Escrow Awareness Survey, 68% of homeowners with escrow accounts saw their mortgage payment rise over the past two years due to higher taxes and insurance, and 55% said they were surprised by the change. Only 60% of respondents reported fully understanding how their escrow account works, while 45% incorrectly believed a fixed-rate mortgage means their monthly payment cannot change.

Metros Where Taxes and Insurance Take the Biggest Bite

Neighbors Bank's study found that in specific metros in Florida, Illinois, New York, Texas, and Arkansas, property taxes and homeowners insurance make up the largest share of the average monthly mortgage payment. In many cases, non-mortgage costs account for more than a third of what homeowners pay each month, reducing the portion of the payment that goes toward principal and interest even in markets with relatively modest home prices.

Why These Markets Rank So High

What stands out about many of the metros at the top of this list is that taxes and insurance make up an unusually large share of the monthly mortgage payment, even in markets where home prices are not especially high. In fact, several Illinois metros on this list also appeared in Neighbors Bank's 2026 Best Cities for First-Time Homebuyers ranking. Lower home prices and down payment requirements can make these markets accessible upfront, even as ongoing taxes and insurance place added pressure on monthly budgets.

Illinois metros appear frequently near the top of this ranking because it relies heavily on property taxes to fund local services. Property taxes account for roughly 40% of local government revenue in Illinois, compared to 30% nationally. This funds a majority share of public school budgets and keeps tax rates elevated, even in markets with modest homes.

In Florida metros like Pensacola and Miami, homeowners insurance plays an outsized role. Exposure to hurricanes, wind damage, and flooding has driven premiums sharply higher in recent years, pushing monthly insurance costs up regardless of home price. In these markets, insurance is no longer a secondary expense, it's a defining affordability factor.

These markets are not expensive for just one reason. They reflect a mix of high effective tax rates, rising insurance premiums, and local income levels that have not kept pace, creating a squeeze that is easy to miss when affordability is judged by home prices alone.

Metros Where Taxes and Insurance Hurt the Least

The analysis discovered that specific metros in Hawai'i, North Carolina, Utah, and Colorado, among other states, have the smallest share of the average monthly mortgage payment going toward property taxes and homeowners insurance. While total monthly payments can still be high, a greater portion of the payment is driven by principal and interest rather than non-mortgage costs, making monthly housing expenses more predictable for borrowers.

What Low-Burden Markets Have in Common

At the other end of the spectrum, several metros benefit from structural advantages that keep taxes and insurance from consuming large portions of monthly housing payments.

Urban Honolulu ranks first, which is surprising given that it is one of the most expensive housing markets in the U.S. However, Hawai'i has some of the lowest effective property tax rates in the country, and homeowners insurance costs are relatively stable compared to disaster-prone mainland markets.

Unlike most states, Hawai'i does not rely heavily on property taxes to fund schools and many public services. Instead, these services are supported by other revenue streams, including the state's general excise tax. This allows property tax rates to remain low even as home values rise, keeping taxes and insurance from consuming a large share of the monthly mortgage payment.

That said, a low share does not mean low costs, and Honolulu is the clearest example. While taxes and insurance make up a relatively small portion of the mortgage, total monthly housing payments remain high because principal and interest are driven by elevated home prices. The difference is that taxes and insurance do not compound the affordability challenge to the same extent they do in higher-burden metros.

Many Western metros on this list, including parts of Utah, Colorado, and Nevada, benefit from lower property tax rates, newer housing stock, and lower climate-related insurance risk. These factors help keep non-mortgage costs in check relative to income.

Generally, interior and less disaster-prone states tend to have lower insurance cost growth than coastal or high-risk regions exposed to hurricanes, floods, or wildfires.

What This Means for Overall Home Affordability

These rankings show that housing affordability is not just about home prices. Instead, it's about the structure of the monthly payment and how much of a budget goes toward expenses buyers can't control after closing.

In high-burden metros, taxes and insurance can strain affordability even when home prices appear manageable. In lower-burden metros, those same costs may play a smaller role, but total monthly payments can still be substantial due to higher principal and interest.

For many buyers, these pressures are further compounded when factoring in private mortgage insurance (PMI) and homeowner association (HOA) fees. Borrowers who put down less than 20% typically pay PMI, which can add hundreds of dollars per month until they build sufficient equity. Condo and townhome buyers typically also face homeowners association (HOA) fees, which vary widely by market and are often required regardless of mortgage size.

While PMI and HOA fees are not included in this analysis, they can meaningfully increase total housing costs in markets where taxes and insurance already consume a large share of the mortgage payment.

What Borrowers Can Do to Avoid Payment Surprises

When taxes and insurance make up a growing share of monthly payments, preparation and regular re-evaluation matter. Borrowers cannot control local tax rates or regional insurance markets, but there are steps they can take to better understand, monitor, and maybe reduce those costs upfront and year after year.

Factor Taxes and Insurance Into the Home Search

Two similarly priced homes in different counties or school districts can have very different monthly tax obligations for borrowers. A lower purchase price does not always mean a lower monthly payment once factoring in the geographic specific costs.

Get Quotes Before Making an Offer

Even before a borrower puts in an offer, understand the home's insurance rate is determined by the selected home's risk and rebuild cost. An underwriter for an insurance policy will factor in details like the age of the roof, the location risk (flood zones, wildfire areas, coastal exposure), the costs of materials used on the home if a rebuild is ever needed, the claims history and distance to a fire station or hydrant. Getting a quote early can prevent costly surprises.

Shop Insurance Regularly

Insurance premiums can vary significantly between carriers for the same property.

Unfortunately, shopping doesn't end once a house becomes a home. It's expected that the insurance costs will increase year over year. Make it a habit to compare year-over-year pricing and be willing to invest time shopping rates to keep payments lower.

Review Annual Escrow Analysis

When mortgage payment changes, borrowers can request or review the breakdown from the servicer to catch changes before the small increases add up quickly. Property tax reassessments, insurance premium increases, and escrow shortages are often the culprits.

Understand the Property Tax Appeal Process

When a property is reassessed, the local taxing authority assigns a new assessed value, which directly impacts the annual tax bill. If the homeowner believes the assessed value is higher than the home's fair market value, they typically have a limited window to file a formal appeal.

The process often involves reviewing comparable home sales, confirming property details for accuracy (such as square footage or condition), and submitting documentation to support a lower valuation. If the appeal is successful, it can reduce the assessed value and lower future tax obligations. While the process varies by county, understanding appeal deadlines and gathering market data early can give homeowners a window to manage rising tax costs over time.

Methodology

This study examines housing affordability by measuring how much property taxes and homeowners' insurance (T&I) contribute to the average monthly mortgage payment (PITI) across U.S. metros.

The most recent data was used whenever possible.

Data Variables

* Home values: December 2025 median home values by metro pulled from the Zillow Home Value Index (ZHVI).

* Property taxes: The median effective property tax rate was calculated by dividing the median home value for each area by the median real estate taxes paid, figures based on the 2024 1-year U.S. Census American Community Survey (ACS).

* Homeowners insurance: The average home insurance cost was calculated by pulling the homeowners insurance premiums for each area from the 2022 U.S. Department of the Treasury data. The numbers were adjusted to 2025 dollars using the Federal Reserve Economic Data (FRED) Producer Price Index, which was recorded between 2022 and 2025.

* Mortgage rates: Interest rate data for the year 2025 taken from the Federal Reserve Economic Data (FRED) Primary Mortgage Market Survey.

* Household income: Annual median household income data pulled from the 2024 American Community Survey (ACS) 1-year. Values used to help contextualize each area's affordability.

Principal and Interest Assumptions

Monthly principal and interest payments were calculated assuming a 30-year fixed-rate mortgage with a 20% down payment (no PMI) and a 6.59% fixed interest rate based on 2025 average mortgage rates from the Federal Reserve Economic Data (FRED).

Taxes and Insurance Assumptions

Average monthly taxes and insurance premiums across all metros were combined into a single figure and expressed as a percentage of the total average monthly PITI payment to rank metros by T&I share.

Across all metros in the dataset, the average T&I share of monthly mortgage payments is 21%.

This story was produced by Neighbors Bank and reviewed and distributed by Stacker.