Why Did My Mortgage Payment Go Up?

Mortgage Payments

If you recently purchased a home, you may have thought that your mortgage payment was set in stone. A fixed payment, over 15 years, etc. Unfortunately, even if your loan is in good standing the payment can increase. Until the home is completely paid off, this is the unfortunate reality of having a mortgage! But why did your mortgage payment go up? What caused it?

The answer isn’t as straightforward as you might think unless you have an adjustable-rate mortgage and your interest rate changes after a predetermined period. If you have an ARM, you can expect the changed interest rate to increase your monthly mortgage payment. However, if you do not have an ARM, keep reading to learn more about the culprit behind your increased payment.

Changes in Your Escrow Account

The villain behind your increased payment could be your escrow account. Specifically, any changes in your escrow account, such as:

  1. Changes in the Price of Your Property Taxes 
  2. Changes in Your Homeowner’s Insurance

One of the most common reasons why your mortgage payment will increase is because your property taxes increased. For example, let’s say you purchased a home for $300,000 in 2022 and it was a new build. While the property taxes on the home for the year that you purchased it were (x) amount, it can change if your home’s value is reassessed by the county and your home is worth significantly more than it was when it was first built. Local taxing authorities will typically reassess your home at different times throughout the years, but your home’s value won’t always change. 

Your escrow account is used to divide your homeowner’s insurance and property tax payments into 12 equal payments. When you make a mortgage payment, you will pay towards your loan and the aforementioned factors. By doing so, you can avoid paying them both in a lump sum each year. A change in either factor will lead to an increased mortgage payment because there is a shortage or overage in your escrow account. 

If there is an overage in your escrow account, you can receive a check for the amount you overpaid for in the mail. However, when your account is short, the mortgage lender will front the payment for you – which essentially leads to the increased mortgage payment.

What Can I Do If My Escrow Account Is Short?

Don’t worry about owing the local taxing authorities. As mentioned above, your lender has got it covered for you! But, you have two options when it comes to paying the lender back. You can choose to pay the extra amount that you owe in a lump sum or spread it out over the next year by having an increased monthly payment.  Make sure to talk with your lender to discuss your options and choose the right one for your financial situation. Everyone is different, so there is no one-size-fits-all solution. 

What to Do When Your Homeowner’s Insurance Skyrockets

If your mortgage payment increases because your insurance has skyrocketed, you aren’t out of options. If you haven’t done so already, you need to shop around for insurance quotes and find a cheaper option that still provides you with the coverage you need to protect your home. Ask your insurer to provide a detailed explanation for the rate hike, which can be due to:

  • Rising replacement costs (materials to replace your home if it was damaged) Due to Inflation or Shortages
  • A History of Claims Against Your Property
  • Changes in Risk Factors

In some cases, your insurance company may be willing to lower the cost if you mention that you plan on switching coverage or companies. However, if your insurance increased because of risk and liability, (i.e., you bought a restricted dog breed in your state or you moved to a disaster-prone area) there’s not much that you can do if your coverage gets more expensive. 

Final Thoughts

If you are struggling to afford your mortgage payment, it may be time to refinance or explore moving to get into a different living situation. Remember to explore all of your options and create a realistic budget that reflects your new payment!

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