Paying to get Money Loaned

You pay off real estate by getting a mortgage. On this mortgage you have to pay interest No other country has mortgage interest rates as high as Argentina. Paying off a mortgage here means an uncomfortable 41.11% mortgage interest rate. In Finland, this is much more affordable with a manageable 1.42%. Before delving into mortgage interest, we explain shortly what a mortgage itself is.

• Highest mortgage interest: Argentina – 41.11%
• Lowest mortgage interest: Finland – 1.42%

Mortgage Definition & Explanation

A mortgage is a type of loan. That means it is a sum of money which a lender pays on behalf of a borrower. A mortgage is a loan which is used to pay off property. The borrower is required to pay the money which they borrowed back, but not as a lump sum, but rather in rates. This means that e.g. as opposed to paying 1 mil. in one transaction, the borrower can pay 10.000 every month for 100 months. On top of this though, the lender typically requires interest, which is a percentage of the total loan which the borrower must pay on top of the rates.

Curious about the details of mortgages? Our easy to understand guide explains everything you need to know:

• Mortgages Explained Easily – How-to, Easy Guide

Mortgage Interest – What is it?

Interest is a price which you pay for the service and risk of someone loaning you money. Mortgage interest rates are expressed as annual payments, and are e.g. 5%. That means that every year you will pay an additional 5% of the total loan amount to the mortgage lender.

How do Mortgages Work?

Who pays less on their mortgage? Which mortgage works for who? There are certain characteristics which make some people more attractive as borrowers to the lender, these people then have to pay less mortgage interest than others. These can be understood simply with the rule of thumb, the more you pay at the point of closing, and the less of a risk you are to the lender, the lower the interest rate will be. The following factors mean you pay a lower mortgage interest rate

• Higher loan orgination fee
• Larger down payment
• The property is a private residence
• Better credit score

APR or Interest Rate? Meaning Explained

What is the difference between APR and interest rate? Interest rate is the annual cost of the loan itself, while APR is the annual cost to the borrower, including fees and other charges on top of the raw percentage rate. This is so that the borrower is cleared up about exactly how much the loan is costing them. It is based on the Federal Truth in Lending act.

• Interest rate is the annual cost of the loan itself
• APR is the annual cost to the borrower

Calculating Mortgage Interest: Formula

How do you calculate mortgage interest? You will receive a mortgage interest rate or an APR, as explained above. This is an annual rate, but you will have to pay it monthly. As an example, we take a loan of $500.000 with an APR of 5%.

Loan Amount x Rate = Annual Payment

$500.000 x 5% = $25.000

Every month you will have to pay this amount divided by 12 (for the 12 months in the year). That means that in order too budget properly, you will need to calculate this as well. So, how do you calculate your monthly mortgage interest?

Annual Payment / 12 = Monthly payment

$25.000 / 12 = $2.083

Wondering about what you have to pay when buying a house? There are too many additional costs to name here, but we’ve summarized everythign you need to know

• All Additional Costs when Buying a House

Types of Mortgage Interest

When choosing your mortgage, you will have to decide between fixed-rate and adjustable rate. These differ significantly, and it is therefore very important to undersstand the advantages and disadvantages of each.

Fixed Rate vs. Adjustable Rate

Fixed-rate loans and adjustable rate loans (also called adjustable rate mortgages) differ in the variability of interest rate, as the name states. That means fixed-rate loans incur the same interest over the whole period of the loan, while adjustable rate loans incur a rate which is set to change across the lifespan of the loan.

The first, fixed rate loans are attractive because there is safety. The interest rate will not change, and therefore budgeting and planning is easy. Typically fixed rate loans are more expensive at the outset than adjustable rates. Additionally, fixed rate loans are designated by time period. The most popular time frame is a 15-year fixed rate loan. That means the borrower pays back the loan and the same interest rate over 15 years.

Second, adjustable rate loans, are attractive to start with, because the rates are lower. Yet, because they can change, borrowers can be surprised that the interest rate increases over time. These also usually begin with e.g. 5 years of a fixed rate, after which the rate begins to vary.

Mortgage Interest Comparisons: Where is Interest Highest?

There are a few top destinations for real estate investments, to know where it is financially viable to invest, and where the rates are high, we have cherry picled some important destinations. Further down is the full list of mortgage interest rates worldwide ranked.

USA – Land of Investment

New York or Los Angeles? What a choice. In the USA, you have a fairly high average mortgage interest rate of 4.9%. But thankfully it’s not difficult to Save on Real Estate Taxes. 4.9% is much lower than many other countries, including its neighbour Mexico, with 11.1%, but more than its other, Canada which has an average rate of 3.6%. Its massive standing worldwide means this is a place where investment is always attractive, and its unlikely to break down into a null market any time soon.

4.9% – Rank 67

• GDP: $20,54 bil.
• Pop: 327,2 mil.

Germany – Consumer Protection

Another country popular for property investment, Germany has a low low average mortgage interest rate of 1.88%. This ranks it the 9th lowest worldwide. With a growing economy, and home to cultural hubs such as Berlin, shopping and fashion centers like Dusseldorf, or new tech monsters like Cologne, its no surprise this is a growing market where many are looking to invest.

1.88% – Rank 95

• GDP: $3,95 bil.
• Pop: 83,02 mil.

Germany has a very different system for real estate, law and mortgages. Our article covers everything you need to know:

• German Real Estate Explained

United Kingdom – History and Power

The home of the Queen, Big Ben, and Stonehenge. There’s much to see here in what was once the world’s foremost power. No countries boast as long a tradition of power and money as the isles weest of Europe. Its average mortgage interest rate is 3.20%, among the lower rates worldwide, and lower than the United States.

3.20% – Rank 79

• GDP: $2.86 tril.
• Pop: 66,65 mil.

Mortgage Interest Worldwide – Full Ranking

Below the full list of countries worldwide where a mortgage interest rate (or comparable) exist. These are ranked from highest rate to lowest. As you can see, mortgage interest rates are highest in Argentina, Iran, Uzbekistan, and Ukraine. Also note that for a different time span, interest rates will be very different. These depart heavily from the average in the USA, which is 4.9%.

The ones listed below are for a 20 year plan with a fixed rate. Nonetheless, they give an accurate overview of where these rates are high or low.

• Argentina – 41.11 %
• Iran – 20.84 %
• Uzbekistan – 20.15 %
• Ukraine – 19.22 %
• Nigeria – 18.50 %
• Turkey – 15.57 %
• Sri Lanka – 14.66 %
• Kenya – 14.56 %
• Kazakhstan – 14.55 %
• Pakistan – 14.05 %
• Belarus – 13.95 %
• Egypt – 13.48 %
• Paraguay – 13.38 %
• Dominican Republic – 12.62 %
• Nepal – 11.74 %
• Colombia – 11.47 %
• Georgia – 11.41 %
• Armenia – 11.30 %
• Bangladesh – 11.21 %
• Mexico – 11.10 %
• Honduras – 10.92 %
• Ecuador – 10.73 %
• Indonesia – 10.29 %
• Russia – 10.25 %
• South Africa – 10.23 %
• Costa Rica – 9.69 %
• Brazil – 9.66 %
• Peru – 9.64 %
• Moldova – 9.39 %
• India – 9.25 %
• Vietnam – 9.17 %
• El Salvador – 8.93 %
• Tunisia – 8.91 %
• Iraq – 8.86 %
• Bolivia – 8.65 %
• Azerbaijan – 8.48 %
• Jamaica – 8.33 %
• Uruguay – 7.83 %
• Jordan – 7.82 %
• Guatemala – 7.79 %
• Palestine – 7.67 %
• Philippines – 7.61 %
• Lebanon – 7.08 %
• Montenegro – 6.63 %
• Algeria – 6.34 %
• Bahrain – 6.32 %
• Trinidad And Tobago – 6.30 %
• Kuwait – 5.99 %
• Iceland – 5.96 %
• Romania – 5.86 %
• North Macedonia – 5.53 %
• Panama – 5.42 %
• Thailand – 5.41 %
• Morocco – 5.34 %
• China – 5.15 %
• Albania – 5.12 %
• Hungary – 4.98 %
• Qatar – 4.78 %
• Oman – 4.71 %
• Greece – 4.67 %
• Kosovo (Disputed Territory) – 4.66 %
• Poland – 4.48 %
• Malaysia – 4.44 %
• New Zealand – 4.39 %
• United Arab Emirates – 4.27 %
• Saudi Arabia – 4.21 %
• United States – 4.19 %
• Bosnia And Herzegovina – 4.14 %
• Malta – 4.07 %
• Croatia – 4.02 %
• Serbia – 4.01 %
• Chile – 3.92 %
• Australia – 3.92 %
• Bulgaria – 3.84 %
• Israel – 3.62 %
• Ireland – 3.58 %
• Canada – 3.55 %
• South Korea – 3.44 %
• United Kingdom – 3.20 %
• Slovenia – 3.18 %
• Cyprus – 2.97 %
• Norway – 2.89 %
• Sweden – 2.75 %
• Czech Republic – 2.68 %
• Latvia – 2.67 %
• Hong Kong – 2.57 %
• Estonia – 2.52 %
• Lithuania – 2.40 %
• Singapore – 2.38 %
• Spain – 2.35 %
• Portugal – 2.28 %
• Netherlands – 2.24 %
• Austria – 2.07 %
• Italy – 1.94 %
• Germany – 1.88 %
• Taiwan – 1.84 %
• Belgium – 1.81 %
• Denmark – 1.69 %
• France – 1.56 %
• Slovakia – 1.54 %
• Switzerland – 1.52 %
• Japan – 1.47 %
• Finland – 1.42 %

What is a Mortgage?

Mortgage is a key component of any property investment. No matter the wealth or region, you’re gonna have to confront the facts about mortgage, the amount you’ll have to pay in total, and the interest. To pick the right mortgage you will need to be informed about everything there is to know about mortgages. All this and more below. If you want to save money on your mortgage, and you already know about saving money on real estate taxes, you should understsand it in detail. We begin with the definition of mortgage.

Mortgage Definition & Explanation

A mortgage is a type of loan. That means it is a sum of money which a lender pays on behalf of a borrower. A mortgage is a loan which is used to pay off property. The borrower is required to pay the money which they borrowed back, but not as a lump sum, but rather in rates. This means that e.g. as opposed to paying 1 mil. in one transaction, the borrower can pay 10.000 every month for 100 months. On top of this though, the lender typically requires interest, which is a percentage of the total loan which the borrower must pay on top of the rates.

What are All the Things you Pay in a Mortgage?

In a mortgage you pay more than just the amount which you borrowed. You pay additional fees at the point of closing the mortgage, you may have to pay a private mortgage insurance, and you will have to pay mortgage interest. The amounts you pay on these usually follow a formula where the more you pay at the closing of the sale, i.e. the more you pay up front on your mortgage, the less you pay later on or annually.

These are just some of the additional costs you pay when closing the purchase of property. This and many more closing costs for house purchases are detailed in our article on

• All additional Costs and Hidden Fees when Buying a House

The Loan – Ending a Mortgage

Of course, you are required to pay back the amount which you borrowed. If you borrow $500.000, you will need to pay this back in full at the conclusion of your mortgage. This is the simplest and most overseeable part of your mortgage, as well as the most substantial sum.

Mortgage Closing Costs – Upfront Payments

These are costs which must be paid up front when closing the mortgage. They pay for things like title insurance, application fees, etc. Mortgage closing costs are of course paid by the buyer of a property at the point at which the property is purchased. There’s too many to list, and these vary and depend on many things, but below some of the common ones.

• Loan origination fee: up to 1% of total loan
• Escrow fees: $350 – $1,000 but can be much more
• Appraisal: $500-$1,000 but can be much more
• Prepaid taxes and insurance: $1,000-$4,500 but can be much more

These typically range around 2%-5% of the total loan amount. So for a $750.000 loan you can pay an additional $37.500 in mortgage closing fees. They should not be confused with purchase closing costs, such as the taxes you pay when buying a house.

Discount Points: How to Reduce your Mortgage

Discount points are points which you pay at the beginning of your loan. The more you pay here, the more discount you receive on your mortgage. If you ‘buy’ 2 discount points, you receive a discount of 2% on your mortgage.

Mortgage Interest Lowest Mortgage Interest

Interest is a price which you pay for the service and risk of someone loaning you money. Mortgage interest rates are expressed as annual payments, and are e.g. 5%. That means that every year you will pay an additional 5% of the total loan amount to the mortgage lender.

Our article covers everything you need to know about the topic

• Mortgage Interest – How Countries Compare

Who is the Lender for a Mortgage?

Mortgages are most often loaned by independent mortgage companies. That means organisations who are specialized in lending mortgages. Although financial institution such as a bank or credit unions. In the USA, banks make up 32.4% of mortgages, credit unions make up 8.8%, with mortgage companies making up 54.4% of the market. These are not all the types of lenders though. Below is a list of all types of lenders in the USA.

What’s Better, Mortgage Companies or Banks?

It’s not difficult to save on real estate taxes generally, but you don’t want to spend more than necessary on your mortgage. Typically mortgage companies (or mortgage lenders) are more flexible. That means they can customize your loan, close your loan faster, and more open to negotiation. They also, because they are specialized in loans, typically have more expertise.

• Mortgage companies (e.g. Quicken Loans)
• Banks (e.g. Wells Fargo)
• Savings associations/loan associations (e.g. Mortgage Bankers Association)
• Online lenders (e.g. GuaranteedRate)
• Credit unions (e.g. Connexus)
• Private individuals (e.g. Family Friend)

What are the Most Popular Lenders?

The top lenders in the USA are Quicken Loans, United Wholesale Mortgage, and Wells Fargo. You can see quickly that specialized mortgage lending companies are the most popular choice at the moment. Here a list of the most used lenders in the USA for mortgages.

1. Quicken Loans – 541,000 loans
2. United Wholesale Mortgage – 339,000 loans
3. Wells Fargo – 232,000 loans
4. JPMorgan Chase – 186,000 loans
5. Fairway Independent Mortgage – 147,000 loans
6. LoanDepot – 146,000 loans
7. Caliber Home Loans – 136,000 loans
8. Bank of America – 134,000 loans
9. Freedom Mortgage – 110,000 loans
10. U.S. Bank – 94,000 loans

Should You use a Mortgage Broker?

What are the advantages of mortgage broker versus a direct lender? A direct lender is an entity (e.g. a bank or credit union) which provides you funds, and to which you in turn pay interest. A mortgage broker is a middle man who is an expert in finding the best mortgage loan. In other words, a mortgage broker takes care of contacting and researching a direct lender.

• Direct Lender: Banks, Credit Unions, etc.
• Mortgage Broker: Middle man who finds the best deal

Mortgage brokers are advantageous if you have difficulties finding a loan. This can be down to low credit scores, or an income which makes lending to you unattractive. Mortgage brokers also often have access to mortgage lending programs unavailable to the typical citizen. Though you will have to pay an extra fee of course to pay the broker for their services.

• Brokers good for low credit scores or low income

Direct lenders such as banks are advantageous because you cut out a middle man. In this case you only have to pay a commission fee to the loan officer (the individual overseeing your loan at the institution). This also has the advantage that the broker is not acting in his own interest, e.g. choosing the institution which pays the highest broker fees.

• Direct Lenders allow to avoid broker fees

What are the Different Types of Mortgages?

There are a few different types of mortgage loans. These differ on three important variables. In other words when shopping for a mortgage loan, you must decide beforehand in which category you fall for each of the following three variables.

Type of Loan: Conforming vs. Non-Conforming Loans

The U.S. government has set certain guidelines delineating ‘conforming’ and ‘non-conforming’ loans. These loans differ in the amount which you can borrow. This limit (as of 2020) is $510.000. That means when you receive a loan for more than this amount, you are receiving a non-conforming loan. Non-conforming loans have worse interest rates and fees than conforming loans. Within non-conforming loans the most popular is the ‘jumbo loan’.

Type of Loan: Fixed Rate vs. Adjustable Rate

Fixed-rate loans and adjustable rate loans (also called adjustable rate mortgages) differ in the variability of interest rate, as the name states. That means fixed-rate loans incur the same interest over the whole period of the loan, while adjustable rate loans incur a rate which is set to change across the lifespan of the loan.

The first, fixed rate loans are attractive because there is safety. The interest rate will not change, and therefore budgeting and planning is easy. Typically fixed rate loans are more expensive at the outset than adjustable rates. Additionally, fixed rate loans are designated by time period. The most popular time frame is a 15-year fixed rate loan. That means the borrower pays back the loan and the same interest rate over 15 years.

Second, adjustable rate loans, are attractive to start with, because the rates are lower. Yet, because they can change, borrowers can be surprised that the interest rate increases over time. These also usually begin with e.g. 5 years of a fixed rate, after which the rate begins to vary.

• Fixed-rate = Same rate for full term
• Adjustable Rate (ARM) = Variable rate

Type of Loan: Conventional vs. Government Backed

Government backed loans are loans which are insured or guaranteed by the government. Examples are Federal Housing Association (FHA) loans or Veterans Administration (VA) loans. If you have a non-conforming loan it is impossible to receive government backed loans. The main differences between conventional loans and government loans are that conventional loans have stricter requirements (e.g. better credit score and higher income), are insured privately, and the guidelines are more relaxed, meaning less paperwork.

Mortgage Terminology Explained

There are many words unique to the real estate loan market which are not used in every day life, making the understanding of mortgages more complicated for the layman. These words are explained below, with definition and explanation

Escrow – Meaning

An escrow or escrow account is a savings account where funds are placed. This account is managed by your servicer, who deposits a portion of each mortgage payment into your escrow account to cover your estimated property taxes and insurance premiums. Not all mortgages come with escrows.

What is a Mortgage Principal?

Mortgage principal, also called loan principal is the amount outstanding on your loan. In other words, the amount left to be paid from the amount you borrowed. E.g. if you borrowed $400.000, and have paid $320.000, your loan principal is $80.000.

Down Payment – First Mortgage Payment

A down payment is a sort of deposit. It is the money you pay in advance to buy a house. You almost always have to pay a down payment to receive a mortgage. A larger down payment generally means better credit terms and a cheaper monthly payment.

Take for example a 5% down payment on your $1 mil. house. You only pay $50.000 at the point of purchase, but will pay a monthly private mortgage insurance, and likely higher interest rates. You can also receive discount points when paying more on your down payment, which reduces the interest rate. If you pay a 25% down payment, you’ll pay $250.000 at the point of purchase, but you will not have to pay private mortgage insurance, as well as receive a better interest rate.

• Larger down payment = lower interest

Mortgage Term – Length of a Mortgage

This is the period of time in which you pay off your loan. E.g. the fixed rate 15 year loan, has a mortgage term of 15 years. The longer the mortgage term, the higher the interest rates, and the longer the loan will be following you. Yet you will have to pay less each month.

Want to learn more about the many additional, and often hidden costs of buying a home? Our article covers everything you need to know

• All Additional Costs of Buying a Home Explained

With the conclusion of a purchase contract, the financing is already under the umbrella. The bills from the broker, notary, land registry and tax office come as soon as the loan is fixed. Because of this, the credit is often underestimated. Back to German Real Estate Overview.

Additionally, in the following there may be slight grammatical errors, as this article was written by a German tax expert. This does not detract from the quality of information.

What Percentage are Incidental Purchase Costs?

20% ancillary building costs should be included in the loan at least, in addition to the purchase price, and are quite realistic.

~ 20% of the purchase price

The 4 Biggest Additional Costs when Buying Real Estate

The overview shows the 4 largest additional costs you expect when buying a house. But what other costs are involved in building a house? Find out more here: House construction & the costs that come up.

Fees: Notarization of the Purchase Contract by Notary

The fees for the notary appointment are probably one of the largest items in the additional costs of the house purchase. The notary fees are fixed and may not deviate from these in any direction, but even these are quite high.

~ 1,5% of the purchase price

As a rule of thumb, about 1.5% of the purchase price has been set – and this only for the signature of the purchase contract. So if you purchase a property with a purchase price of 100,000 Euros, the notary’s fee is 1500 Euros, which, in Germany, is usually paid for by the buyer.

The exact fees for notaries in Germany are laid down in the notarial fee schedule, but can also be calculated online.

• Read more here: Notary and Purchase Agreement

Taxes: Real Estate Transfer Tax

As soon as the contract has been signed at the notary and the purchase agreement has been notarized, the buyer will receive mail from the tax office. Next, the purchase tax is demanded from the buyer.

This is incurred somewhat differently. Normally it amounts in Germany round about 3% – 6% of the purchase price of the real estate. Since the land transfer tax is a state tax, meaning each state determines their individual rates land transfer tax rate.

In some federal states, however, such as Hamburg, Berlin and Saxony-Anhalt, it is 4.5% of the property purchase price. For a purchase price of 100,000 euros, for example, you therefore pay another 3500 / 4500 euros for the land transfer tax.

Reading tip: Get to know tax planning options, from cooperatives to family foundations: Save taxes with real estate

Purchase price 100.000 Euro

This debt should be paid immediately, because only when the amount has been received by the tax office will the latter issue the so-called clearance certificate. This certificate is mandatory for the transfer of the new owner to the land register. This is arranged by the land registry office and costs again fees, which are comparatively low.

3.5 – 6.5% of the purchase price

Commission: Brokers Calculate their Share

Whoever buys a property or a plot of land through a real estate agent must of course include the commission to the agent in the overall calculation. You will usually receive the invoice from the real estate agent directly after the notarization.

How high the commission is varies and depends on various factors, such as the region. In most cases it varies between four and six percent of the purchase price of the property.

With a property purchase price of 100,000 euros, you pay between 4,000 and 6,000 euros only for the real estate agent. However, it is important to know that it is definitely worthwhile to negotiate with the real estate agent’s commission, as it is known that this is associated with a large amount of leeway.

A recommendable, total commission of 3.48 percent including VAT is a recommendable and realistic value.

~ 3.48 % of the purchase price

Supplements: Credit Interest and Installment Surcharges

The banks would like to take part in a house sale, of course, and not only through the loan interest rates. In addition to the negotiated loan interest rates, you are charged costs that are additional and usually not expected by the buyer.

These costs are not clearly visible at first glance and therefore banks are deceiving their customers. Such hidden costs can occur in the form of monthly provision interest on the unpaid portion of the total loan.

There, for example, 0.25% is charged, which the customer does not expect and which adds up to the mass. For a loan amount of 100,000 euros, this is about 250 euros per month, which you do not expect.

Additional, Hidden Costs

But there are other hidden costs that you don’t expect. These include account management, which some banks charge as a fee, but also installment surcharges if you get part of the loan paid out, depending on the progress of the construction.

With your loan, pay special attention to exactly what is written in the small print, ask about all unclear points and only sign if you are certain about all obligations.

To be on the safe side, have your bank calculate the so-called total effective interest rate or the actual effective interest rate. There, all service charges are listed in detail and clearly arranged.

Assessor & Renovation – Potential Additional Costs

Another factor that does not apply to all properties is the cost of appraisers and renovators.

Particularly with older real estate it is meaningful to hire an appraiser before the purchase, who examines the real estate down to the lattices. This includes, for example, checks on moisture and pollutants (especially for properties dating from the 1970s). Such appraisals are carried out by independent experts such as architects or civil engineers but also real estate experts.

The costs here are very different, as it depends on the type of expertise and the time required. Depending on how good the report is, possible renovation work in the future may be necessary, which should be incldued in the purchasing price as a reduction. For this reason, these assessments are critical.

Whether it is a new heating, new windows or the restoration of the roof, the costs for this case also vary greatly. Here you should note that there are usually costs for general renovation before moving in. New floors, different wall colors, a new kitchen or even tearing down a wall.

All these things again cost money, which should not be underestimated. Often there are more costs than planned, because something goes wrong, but was more expensive than calculated or small things are missing. Also note that many renovation works cannot be done by yourself. So you need craftsmen and experts to help you and they will of course calculate their working time. Before you decide on a house, think about which work would still have to be done, what you would like to renew and how much the costs for such renovation work will be.

Conclusion: Calculate additional purchase costs

In Germany, for a property with a purchase price of 100,000 euros and a loan of the same amount, expect additional costs of 9,000 to 12,000 euros.

If you do not include them in your loan amount, they must be deducted from your own capital. Such unexpected service charges should not be underestimated and can vary enormously from property to property. The higher the price of the property, the higher the service charges you expect.

• Back to our full guide on Real estate Taxes in Germany.

Real Estate – All Taxes you Pay when Buying Real Estate

Buying a house is a massive investment, and most people are surprised by the many additional costs. To begin to understand all the extra costs which the purchase of a house brings, means understanding the taxes. That means, that the three types of taxes listed below are all the necessary costs which you will pay to the government in the area of the home you are purchasing.

Upfront Taxes – What are Pro-Rata Taxes?

When buying a home in the United States, you are typically required to pay 6 months of property taxes in advance upon purchase. That means six months worth of property tax, called pro rata. Yet, on the purchase of the property, there are only three taxes. Which makes this quite easy to understand. The property tax is the tax which an individual has to pay annually for owning property, the transfer tax is the tax on the purchase of the home, and the mortgage recording tax (where it exists) is the tax on the recording of the mortgage.

• Taxes you pay in advance!

Many of these taxes can be deducted from your federal tax sheet. Learn more:

• Real Estate Tax Deductions Explained

Do you have to pay Sales Tax on Real Estate?

No. In federal law, real estate such as homes, property, or land, are not subject to sales tax. Although some states do have sales tax on items which may be interpreted as being a home (e.g. a mobile home).

Taxes You Must Know – Most Important Real Estate Taxes

These are the taxes you have to know about when paying for your home. How each of these is calculated depends on the city, county, and state the real estate is bought in. The three relevant taxes which you will incur when purchasing a home are property taxes, transfer taxes, and mortgage registration tax. Not all exist in all states, and there are many intricacies to note.

Property Taxes – Do You have to Pay Property Tax when Buying a Home?

Property Taxes are ad-valorem taxes which you pay for owning property. Most typically, this property consists of land, as well as anything which is permanently attached, such as any real estate, but also, roads, docks/wharfs, pools, etc. In some states, the property tax even includes items such as boats. When buying a house, these must be paid in advance, and then received back from the seller. Property taxes are typically a rate which is multiplied by the estimated value of the property. This value is estimated by an appraiser, and takes into account location, age, etc.

Avg. US Property Tax: 1.11%

To calculate property taxes, you receive a rate, which is influenced by local, county, and state laws. E.g., a house in Hawaii, worth USD$1 mil., will cost USD$3,000 in property taxes a year. Yet this does not take into account the rate which a specific county in Hawaii may add to this.

• U.S. States Property Taxes

Transfer Taxes – What is it? Who Pays transfer Taxes?

Transfer taxes are argued to be taxes which pay for the work and materials invested when documenting the purchase of a new home. This is why they are sometimes also called documentation taxes. They are one time fees upon the transfer in ownership of a home, i.e. when buying or selling a house. These are sometimes paid by the seller, and sometimes by the buyer, with some states stipulating who, and sometimes the real estate agent mediates between seller and buyer.

• Sometimes paid by seller, sometimes by buyer

Avg. US Transfer Tax: 0.6%

These are often felt to be one of the more complicated taxes because the rate does not only differ by state, but also between counties and between cities. E.g. in New York you have the New York State (0.4%), New York City (1,4%), Mansion (1%, only when buying a house > USD$1 mil.) transfer taxes. Meaning when you buy a house for USD$1 mil., there is a total of USD$28,250.

• U.S. Real Estate Transfer Taxes

Mortgage – What is a Mortgage Registration Tax?

This tax is based on the amount of debt being secured by the procurement of real estate. It is a state-based tax, and is paid towards the locations where the mortgage is documented and recorded. If the buyer wants a mortgage, the buyer pays the registration fees for the mortgage. In Minnesota, there may be an additional tax such as an “environmental response fund tax”. The 7 states which require a mortgage tax are Alabama, Florida, Kansas, Minnesota, New Yoek, Oklahoma, and Tennessee.

Avg. US Mortgage Registration Tax: 0.2%-.4%

The amount required is again based around the amount included in the mortgage. E.g. in Minnesota county, there is a 0.23% mortgage registration tax, when a mortgage worth USD$1 mil., you will pay USD$2300 in mortgage registration tax.

• U.S. Mortgage Taxes

Closing Costs Real Estate – Hidden Additional Costs

These taxes are just some of the many additional costs which accompany the purchase of real estate. Buying a house means paying attorneys, brokers, and many other individuals or organisations. And these additional costs can equal as much as 5-6% of the total purchase price of the property. We’ve broken down all the costs you have to know about in our article

• Buying Real Estate – All Additional Costs

Mortgage Tax – Taxing your Home Loan

In some U.S. states you are required to pay a tax on closing a mortgage. This is one of the most important closing costs for real estate purchases. For this reason it is a one-time payment when closing the mortgage. There are many names for this, from mortgage recording tax, to just simply mortgage tax. It is the buyer of a home who is required to pay a mortgage tax. Mortgage taxes can also vary within states, counties, and across cities.

Mortgages are complicated. We explain them easily

• Mortgage Explained – Meaning, How-to, Guide

What is a Mortgage Tax

This tax exists to document the transaction which takes place when closing a mortgage. It is constructed of a percentage of the amount of debt being secured as a result of the creation of debt. It is a state-based tax, and is paid towards the locations where the mortgage is documented and recorded. In Minnesota, there is an additional tax in some counties, the “environmental response fund tax”. The 7 states which require a mortgage tax are Alabama, Florida, Kansas, Minnesota, New York, Oklahoma, and Tennessee.

Mortgage tax is not the same as property taxes, or as mortgage interest.

How is Mortgage Tax Calculated?

Each state has a mortgage tax rate. The mortgage rate is easily calculated by multiplying the rate in the location of the property (make sure to take into account state and county regulations!) by the amount which is in the mortgage. Also, make sure to take into account that mortgage taxes are rounded up.

E.g. in New York State, there is a mortgage tax rate of 1.05%. That means closing a mortgage in New York costs USD$7.500, given the rate of 1.05% and a mortgage worth USD$500.000.

Mortgage Tax Payment = Mortgage Tax Rate x Total Mortgage Amount

It is possible to reduce the mortgage tax by “assignment transferring”. In a nutshell, the loanee takes the assignment of loaning the mortgage to a new company, here the original tax is transferred, and therefore does not have to be paid.

Want to find out more about saving on your real estate tax bill?

• Real Estate Tax Deductions USA – How to Save

List – Mortgage Taxes by State

There are seven states which require a mortgage tax. These may be called different names, but are all the same construct.

New York

• Name: Mortgage Tax
• Rate: 1.05%
• Exemption: Possibility of $30 if the relevant “property is, or will be, improved by a one or two family dwelling.”

Alabama

• Name: Mortgage Tax
• Rate: 0.15% (.15 per $100, total mortgage amount rounded up to the next highest $100.00)

Oklahoma

• Name: Mortgage Tax
• Rate: 0.10% (+ $5 certification fee)

Minnesota

• Name: Mortgage Registry Tax
• Rate: 0.24% (+ 0.01% Environmental Response Fund Tax in Hennepin and Ramsey Counties)
• Exemptions include contracts for deed, certain agricultural mortgages, marriage dissolution decrees, and certain low- and moderate-income housing mortgages.

An oceanside house surrounded by palms and beach in Florida.

Florida

• Name: Documentary Stamp Tax
• Rate: 0.35%
• Late penalty: 10% + increasing monthly interest rate

Tennessee

• Name: Mortgage Tax (part of “recordation tax” which includes realty transfer tax)
• Rate: 0.115% (does not apply to the first $2.000 of the debt)

Kansas (Until 2019)

• Name: Mortgage Registration Tax
• Rate: 0.26%
• Since 2019, you no longer pay mortgage registration tax in Kansas