Most of you probably pay your property taxes monthly, usually as part of your mortgage. (At least, if you’re Canadian) Your mortgage lender usually offers this service for free,where they hold the tax money for a little while and then forward it onto the city. The bank gets to use some of your money for a little while for free, and in exchange you know your property taxes will get paid. It seems like a pretty good trade-off.
So if that’s the case, why was I down at city hall this morning paying my 2013 property taxes, even though they’re not due until the end of August? It’s simple. My town, like many others, gives you a discount if you prepay property taxes. We like discounts, right?
I saved 3.5% by paying my taxes 7 months early. You might look at that number and scoff, because it’s only a measly 3.5%. That’s (checks fingers) less than 4%. Big whoop. You’re less excited than my last girlfriend when I took her to the hockey game for her birthday. Maybe that’s why I don’t have a girlfriend anymore.
You should be excited though, and here’s why. If you can get 3.5% guaranteed for a 7 month return, that translates to a 6% return annually. Current 1 year GIC rates are, well, a crap-ton lower than that. You’re not even going to do that good buying bonds, especially in today’s low interest rate environment. It’s about as good as you’re going to do without taking any risk.
It’s not just my town that offers it. Many other cities offer a discount if you prepay property taxes. I spent a little time on the Google machine, and found cities such as Winnipeg, Lethbridge and Brandon all offered discounts if you prepay. That’s as far east as I got before I got bored. Other places might offer a prepayment discount too, but if they’re anything like my town, they won’t be very vocal in advertising it. After all, no local government really likes losing revenue. You’ll have to call or send an email. Or maybe go down to your local city hall and drop by for a visit. They’ll pretend to be nice while answering your stupid questions, and then mock you once you’re out of earshot. Sounds like fun.
Many communities want you to sign up for a monthly withdrawal program, calling that a prepayment. I give them credit for trying, but offering to let someone pay their taxes in equal installments would be a nicer perk if EVERY OTHER CITY IN THE HISTORY OF EVER DIDN’T ALREADY OFFER THE SAME DAMN PERK. Sorry, I got a little excited there.
Your prepayment is always based on the previous tax year, so you’ll usually have a small balance to pay once property taxes come due, since taxes have a habit of rising every year. I blame cute dolphins, for some reason.
I’m not sure if such a thing exists in the United States, and I’m altogether too lazy to Google that crap. American readers, chime in. If you guys need me, I’ll be rubbing the 100 or do dollars I saved by prepaying my property taxes all over my naked body.
In the same vein, I always thought that stores who got slapped with 2% – 3% charges for people using credit cards, should just offer a discount if you pay in cash.
If that were the case, I’d just pay in cash all the time if they made it worth my while.
At least some cities in Canada decided it was better to get the money now than wait and hope for it later. I wish they did that for income taxes as well. I’d prepay without a doubt.
@Mochi – I believe there’s something in the credit card act (if that’s a real thing) that prohibits merchants from giving a discount based on the method of payment.
Thanks for posting this Nelson. I’m firing off an email to the city of Ottawa right now to check on this. If they offer something similar it would save me about $100 on my property tax bill.
Well worth it if one has the cash available to prepay.
S
I believe the Lethbridge option is to pay the City directly in 10 monthly installments, and you get a 1.5% discount. (Checks website). Yep – http://www.lethbridge.ca/living-here/my-taxes/pages/tax%20installment%20payment%20plan.aspx
Doesn’t sound as sweet as your deal.
We don’t have a discount here, but we do have a pretty large window for tax payments – enough that you can shift them between years, and book those deductions (if you itemize your taxes) where they fit best. Thanks for the huge tax bill, California!
Thanks , but…
No discount in Brampton, the person I just spoke to had no idea what I was talking about. I do 3 pay feb-Apr. / 3 pay July-Sept. They claim there is no built in finance charge you pay exactly the tax billed to you. So in my case there is no benefit to pay early.
I was going to complain that you were falling down, but there you have it, all the way down in the last sentence :).
Calculating your annual return on a savings like this is a great exercise. An even more pronounced example I have seen is with auto insurance. You generally have the choice of paying every 6 months (“for free”), every 3 months, or every 1 month. The 3- and 1-month options charge a $10-per-payment “convenience fee” or some such nonsense. The savings by paying every 6 months vs. every one month are as follows, assuming a $1,200-a-year insurance bill: pay $600 every 6 months vs. pay $110 every 1 month. If you run that properly through a financial calculator, you will see you are making a 47% annualized return on your “investment” of $600 upfront (really, $490 upfront because you’re saving the first month’s $110 payment you’d otherwise have to make).
I am in the states and my city doesn’t offer any discount. They would probably thank me, but that is about it. Thanks for ending with that visual.
I just searched my city’s property tax site and there was no information on prepayments so I sent them an email asking and informing them of the benefits to the city of offering this service. If many people paid their property taxes early the city could earn interest on that money and avoid having to pay interest on short term loans they need to tide them over until the property tax installments are due 4 times each year.
If I can’t benefit from this savings now perhaps I can in the future. Any extra money in my pocket is a good thing.
Your assuming that the city would actually try to do something useful with that money early instead of spend it wastefully somewhere else. You give them way too much credit….
I don’t know if this applies across the board, or just to the bank that holds my mortgage, but if your mortgage is over a certain amount, the bank may not give you an option w/r/t property taxes. Under my old condo mortgage (same bank), I was allowed to make my own arrangements. Under my house mortgage, the bank insists on paying the taxes on my behalf (in a lump sum in June); I have to pay monthly instalments to the bank, along with my mortgage payments. At least, that’s what I was told when I got the mortgage in the first place. [Note to self: check if the policy has changed.]