Why Did My Mortgage Payment Go Up?

If you have an adjustable-rate mortgage, you should expect your mortgage payment amount to change over time.

However, homeowners with a fixed-rate loan could also see their payments increase under certain circumstances. This can happen because the amount you need to pay into an escrow account can change if there's a shortage in the account or if property tax and insurance costs increase.

This guide explains why your monthly mortgage payment may increase, so you are prepared if this happens to you.

Common Reasons Why Mortgage Payments Increase

Here are some of the most common reasons why your monthly mortgage payment could increase.

Escrow Shortage

Most mortgage options require you to stay current on your property tax and maintain homeowners insurance throughout the year. You typically make payments towards these expenses as part of your regular monthly payment. This money is put into an escrow account.

If there is a shortage in your escrow account because your property tax or insurance costs increased, you will need to make larger monthly mortgage payments to cover the shortfall.

Property Tax Increase

Most homeowners include payments toward property taxes in their monthly mortgage payment. The money is put into escrow, and the mortgage lender pays the property tax bill (to your local government) when it comes due. When property tax bills increase, monthly payments must increase to ensure there's enough money in escrow to cover the payment.

Changes to Homeowners Insurance

You also make monthly payments towards your homeowners insurance, with the money put into your escrow account used to pay annual premiums. When homeowners insurance costs increase, escrow payments must increase accordingly. This causes your monthly mortgage payment to increase.

ARM Adjustments

Homeowners who have an adjustable-rate mortgage (ARM) typically have a fixed interest rate for an introductory period (such as 3, 5 or 7 years). After the introductory period, the interest rate can adjust on a specific schedule, such as every six months or every 12 months. The interest rate is tied to a financial index, so mortgage rates rise or fall when the index does. This leads to higher or lower monthly payments.

Loss of Tax Exemptions

Property tax exemptions allow you to save money on your tax bill. For example, you may qualify for a homestead exemption on your primary home.

If you lose eligibility for an exemption, then your property tax bill goes up. This means more money must be put into escrow, so your monthly mortgage payment goes up.

What To Do if Your Mortgage Payment Increases

If your mortgage payment increases, you should verify why and then consider your options to try to reduce your payment. Here are a few possible steps to take.

• Get rid of PMI: If you have private mortgage insurance (PMI) and your conventional loan balance has dropped to 80% of the home's original value, you can request that PMI be removed. Your lender must automatically remove PMI when your loan-to-value ratio drops to 78% of the original value, but requesting removal earlier could save you from paying PMI and lower your monthly mortgage payment. FHA loans have different requirements.
• Review your escrow statement: You can see your balance, where the money is going, and why the payment went up. This will provide insight into steps you can take to reduce your payment.
• Compare insurance providers: If you can find more affordable homeowners insurance, you will put less money into escrow. This lowers your mortgage payment. Shop around and get quotes from several insurers to get the best rates.
• Appeal your tax assessment: If you think your local tax authority has appraised your house too high, you can appeal the appraised value. If you can prove the value should be lower, this reduces your property tax bill and thus your monthly mortgage payment.

You can also refinance your loan if you qualify for a new loan at a lower rate. Use a mortgage payment calculator to experiment with different scenarios and see how your payment could change if you refinance.

Mortgage Payment Increase FAQs

If you still want to know more, check out these frequently asked questions about mortgage payment increases.

Can You Lower Your Mortgage Payment?

You may be able to lower your mortgage payment by refinancing to a lower mortgage rate, by reducing your property tax or insurance costs , or by removing PMI. By refinancing, the total finance charges may be higher over the life of the loan. Talk with us any time about options to reduce your payments.

Why Would a Mortgage Payment Suddenly Increase?

A mortgage payment could suddenly increase if you have an adjustable-rate mortgage and your rate adjusts higher. If you have a fixed-rate mortgage, your payment could increase if you pay property taxes or insurance into an escrow account and your property tax or insurance payments increase.

Can My Mortgage Payment Go Up if I Have a Fixed-Rate Loan?

Your mortgage payment could increase on a fixed-rate loan if you pay your property taxes or insurance into an escrow account as part of your monthly payment. If either property taxes or insurance increase, or you have an escrow shortfall, your payment could go up.

Final Thoughts: Preparing for Potential Mortgage Payment Increases

Understanding the reasons your mortgage payment could increase helps you prepare for and respond to a payment increase.

You may have options to refinance or to try to lower your tax or insurance costs to reduce your monthly payment. Reach out to Freedom Mortgage today to get prequalified for a loan that best fits your budget and financial goals.