It’s true. Your mortgage payment can go up – even with a fixed-rate mortgage. In fact, your monthly mortgage payment can fluctuate several times over the term of the loan. If your monthly payment has gone up or down, the first order of business is to figure out why. Here are the top reasons mortgage payments change: Property taxes going up or down can cause a mortgage payment change. Most people pay their property taxes (and homeowners insurance) through an escrow account. With an escrow account, the cost of your property taxes is spread out in equal payments over a year, so you don’t have to pay your entire tax bill in one shot. If a tax increase causes a shortfall in your account, your lender will cover the difference until your next escrow review. Following the review, your monthly payment will increase to cover the shortfall, and your lender will increase the tax estimate to ensure sufficient future coverage. Your mortgage servicer conducts an escrow analysis once a year, which may not coincide with your property tax evaluation. The good news is that your tax payments will only change under certain circ*mstances. Occasionally, your mortgage payment may go up or down due to a property value reassessment. The frequency of property reappraisals can differ by location. It may happen once a year, every 2 years or only when a house changes owners.Property Tax Changes
Reassessment
Exemptions
The loss of property tax exemptions can also drive your mortgage payment up. Some states and municipalities require you to reapply for your exemptions every year.
If you received a tax bill estimate from the previous homeowner and it looks different from your tax bill, they likely qualified for exemptions that you don’t, and vice versa. Exemptions are based on an owner’s qualifications.
Contact your local tax office with questions about exemptions or changes to your taxes.
Homeowners Insurance
If you have a mortgage, you’re required to have homeowners insurance. It protects you and your lender against damage to your house. Your lender may secure a policy if you don’t have a current policy or it's expired.
If your lender sources the insurance, it may be more expensive than shopping around for your own policy and cause your mortgage payment to increase.
Your escrow account may experience a shortfall if you change homeowners insurance policies, and your lender has to cover the difference. Another reason you may not have enough in your escrow account to cover your payment is if your premium suddenly increases.
Adding An Escrow Account
Sometimes, homeowners can choose between having an escrow account or making annual property tax and homeowners insurance payments directly. When they no longer want to make lump-sum payments, homeowners can add an escrow account at some point over the mortgage term.
Why Did My Escrow Payment Go Up?
Escrow payments usually go up due to increasing insurance costs or taxes. If you opt to add an escrow account later in your mortgage term, it may involve additional fees to set up and manage the account.
Fortunately, the cost to set up and manage the account shouldn’t exceed one-sixth of your annual escrow payments.
If you miss a tax or insurance payment, your state or local government may impose a fine or initiate foreclosure. To prevent this from happening again, a lender or servicer may require an escrow account after the missed payment to ensure on-time payments.
Interest Rate Adjustments
Your mortgage payment will change after a certain period if you have an adjustable-rate mortgage (ARM).
An ARM’s initial rate is generally lower than comparable fixed rates. After its initial rate period (usually 5, 7 or 10 years), the rate is variable and typically changes every 6 months to a year, riding the fluctuations of the global financial markets. Then the remaining loan term is re-amortized at the new interest rate.
While your mortgage payment will spike or drop as mortgage rates change, there are limits to how much a rate can go up or down from its initial rate.
Mortgage Refinance
Refinancing your mortgage loan can cause your monthly payments to change – sometimes, by a lot.
Your monthly housing bill can decrease if you refinance to a lower interest rate or a longer loan term. However, if you refinance to a shorter loan term (for example, from a 30-year to a 15-year home loan) to pay off your home faster and save on interest, your monthly payment will go up.
If you’re thinking about refinancing, make sure you can afford any changes to your monthly payment.
Service Member Benefits
The Servicemembers Civil Relief Act (SCRA) provides certain protections to service members on active duty.
During active duty and for 1 year following the end of the assignment, service members don’t pay late fees, their lender can’t foreclose on their home and their mortgage interest rate stays capped at 6%.
Once the period expires, their monthly payments may increase.
New Fees Were Charged
The answer to why your payment changed could be that your lender added new servicing fees to your monthly bill. To confirm, check your monthly mortgage statement for any unfamiliar fees. Also, consider talking to your lender to see if you can remove any new fees.
