Property taxes 101 

In this article: 

• How property taxes work in Arizona 
• How property taxes affect your mortgage payment 
• How to prepare for property tax changes 

Property taxes are a major part of homeownership, and in Arizona, they work differently than in many other states. Because most homeowners pay property taxes through their mortgage escrow account, changes in tax amounts can directly affect your monthly mortgage payment. Understanding how Arizona calculates property taxes can help you better anticipate these changes and avoid surprises during your annual escrow analysis. 

This guide explains how property taxes work in Arizona, how they are calculated, when they are billed and how they influence your mortgage payment as a Desert Financial member. 

How property taxes are calculated in Arizona 

Arizona uses a unique property tax system that relies on several components. Your property tax bill is not based on your home’s market value alone. Instead, it is calculated using formulas set by state law and local taxing authorities. Here are the key terms you’ll see on your assessment: 

Limited Property Value (LPV): This is the primary value used to calculate your property taxes. It is not the same as your market value. The LPV increases annually by a capped percentage unless certain changes occur (such as new construction or a significant remodel). 

Assessed value: Arizona applies an assessment ratio to your LPV. For residential properties, the ratio is typically 10 percent. LPV × 10 percent = assessed value. 

Tax rates: Each county, city, school district, and special district — such as fire, library, or community college districts — sets its own tax rate. Your total property tax rate is the sum of all applicable district rates. 

Formula summary: LPV → assessed value → tax rate → final tax bill 

Even small changes in LPV or district tax rates can impact your tax bill for the year. 

How Arizona’s system causes property taxes to change 

Several factors cause property taxes to rise or fall from year to year. 

• Annual LPV increases: State law allows LPV to increase by a limited percentage each year. Even if your market value stays the same, your LPV may still rise. 
• Changes in tax rates: Local districts adjust their tax rates based on budgets, community needs, voter-approved bonds and school funding. 
• Home improvements: Adding square footage, updating your home or remodeling can increase your LPV. 
• Changes in district boundaries: If you live near a school or city district border, boundary adjustments can influence the rates applied to your property. 

All of these factors contribute to changes in your escrow needs. 

When property taxes are billed in Arizona 

Arizona property taxes follow a timeline that often surprises new homeowners. Here is the general billing cycle: 

• Taxes are billed twice a year.
• The first installment is due in the fall.
• The second installment is due in the spring of the following year.

Because Desert Financial pays these bills from your escrow account, your annual escrow analysis incorporates the most recent tax amounts to project the next year’s payment. 

How property taxes affect your mortgage payment

Your monthly mortgage payment includes an escrow portion that covers your property taxes and homeowners insurance. When your property taxes change, your monthly payment must also be adjusted to ensure your escrow account will have enough funds to pay the bills on time. 

If property taxes increase 

Your escrow portion will increase to cover the higher amount, and your monthly mortgage payment may go up. 

If property taxes decrease 

Your escrow portion will decrease, but your escrow balance may need to be reviewed for shortages or surpluses from previous cycles. 

If taxes increased unexpectedly 

This can cause an escrow shortage and may increase your monthly payment for the next year. 

These adjustments are a normal part of the escrow process. 

Why escrow shortages are common in Arizona 

Because Arizona’s property taxes can fluctuate every year, escrow shortages are more common than many homeowners expect. Common reasons include: 

Rapid home value appreciation: Even though Arizona uses LPV instead of full market value, fast growth in home prices still leads to higher assessments. 

District budget changes: Schools, fire districts and cities adjust their tax rates every year. 

Delayed or unpredictable billing: Arizona issues its tax bills later in the year than many states, which can make early estimates less accurate. 

Unexpected LPV increases: Improvements or corrections to assessments can increase taxes mid-cycle. 

As a result, your escrow analysis may be adjusted to account for new tax projections. 

How to prepare for property tax changes 

While you cannot control local tax rates, you can take steps to stay informed and reduce surprises. 

• Review your annual Notice of Value: Counties send this in the spring. It shows your LPV and assessed value for the upcoming tax year. 
• Track LPV trends in your area: Knowing typical increases can help you anticipate your next tax bill. 
• Monitor local elections: Voter-approved bonds and overrides directly affect your tax rate. 
• Budget for possible escrow changes: Setting aside a small cushion during the year can reduce the impact of shortages. 

Talk with your insurance provider and Desert Financial if you make major home improvements. 

Changes to your property could affect your tax assessment. Being proactive makes it easier to manage changes in tax-related escrow payments. 

What to do if your mortgage payment increases because of taxes

If your payment increases due to higher property taxes, you have several options: 

• Review your escrow analysis: Make sure the new tax projections align with your county’s billing. 
• Pay any escrow shortage in full: This helps minimize the monthly payment increase. 
• Spread the shortage over 12 months: This option may make the payment change easier to manage. 
• Contact Desert Financial: We can help review your escrow account and discuss your repayment options. 

Understanding why the change occurred helps you plan with confidence. 

When to contact Desert Financial 

We’re always here to support you with clear answers and member-first service. Contact Mortgage Servicing right away at (602) 433-7097 or firstmortgageservicing@desertfinancial.com if: 

• Your property taxes increased unexpectedly.
• Your escrow analysis does not match your county tax bill.
• You received a notice about a tax adjustment or correction.
• You want help planning for future tax changes.
• You need help understanding how taxes affect your monthly mortgage payment.