When you buy a home, you expect your mortgage payments to be stable, especially if you have a fixed-rate loan. But for many homeowners, the amount of money that is delayed monthly can creep up over time, saying, “Why did my mortgage payments go up?”
Whether you’re paying back your home in Denver, Colorado or managing a home in Orlando, Florida, this Redfin article explains the most common reasons why mortgage payments are rising and the steps you can take to lower them.
Why did my mortgage payments go up?
A high monthly mortgage bill doesn’t necessarily mean you’ve made a mistake. Mortgage payments can increase even if you never missed a payment. In most cases, the principal and interest remain the same, but the escrow portion may change. This is the most common culprit:
1. Change your escrow account
Most lenders set up escrow accounts to raise money for property taxes and homeowner insurance. When these bills go up, the lender will increase the escrow portion of the payment, despite the fact that interest remains the same as the principal.
>>Read: What is Escrow?
2. Property tax hike
Local governments can revalue your home and raise your property taxes. If taxes increase or if you lose your property tax exemption, the contribution of escrow will also increase. The changes go directly to your monthly mortgage.
For example: If your escrow account is shorter than $240, the lender may add $20 a month to your mortgage next year.
3.Hiking homeowner insurance premiums
Homeowner insurance is mandatory for lenders to protect their investments. Premium may rise in your case:
Switch providers add coverage to live renovations or upgrade your home in areas where billing and climate-related risks are increasing
As premiums increase, escrow accounts will require more money. Increase your monthly payments and increase. For example, if your annual premium increases by $120, the lender could add $10 to your monthly mortgage payments.
4. Adjustable Mortgage (ARM) Reset
If you have an adjustable mortgage, the initial interest rate is locked only for a set time (typically 3, 5, or 7 years). Once the fixed period has ended, the rate is adjusted annually or every six months. If the rate is higher than when it started, your monthly mortgage can jump significantly. However, if prices drop, payments can be reduced.
Inflation, changes in federal funding rates, or broader market conditions can all lead to mortgage rates.
5. The benefits of service that has expired
Active military members are protected under the Military Citizens’ Relief Act (SCRA), which caps mortgage interest rates at 6%. Once active duty is finished, the loan will return to the higher rates that were originally on the contract and increase payments.
How can I lower my monthly mortgage payments?
Good news: There are ways to retreat them as well as payouts rise. Here are some practical steps homeowners take:
1. Remove mortgage insurance
If you purchase less than 20%, you may be able to pay Private Mortgage Insurance (PMI). Once you reach 20% of your shares, you can request a deletion. Check your loan statement or check your lender for current fairness. Eliminating PMI can reduce your monthly bill by hundreds of dollars.
FHA loans are even more tricky. Mortgage insurance often lasts 11 years or the lifespan of the loan unless you refinance yourself with a traditional loan.
2. Refinance the loan
Refinance can reduce your payments as follows:
To extend the lock loan term at low interest rates if interest rates drop and increase costs over more years (this could increase the total interest paid).
To calculate your savings, consult a mortgage professional.
>>Read: Should I refinance my mortgage?
3. Shop for homeowner’s insurance
Adjusting your switching provider or coverage can reduce premiums and escrow requirements. Make sure your coverage is still properly protected.
>>Read: How much homeowner insurance do you need?
4. Appeals for property tax assessment
According to the National Taxpayers Union Foundation, up to 60% of homes are overvalued, but only 5% of owners are suing. If you suspect your home is too taxable, you can:
Evidence to hire a third-party assessor to confirm the deadline for local appeals, or work with a real estate agent to present it to the local tax appellate board.
The successful appeal will help reduce taxes and mortgage payments.
Frequently Asked Questions about Increased Mortgage Payments
1. Why does my mortgage continue to rise even though I have a fixed rate loan?
Even if you have a fixed-rate mortgage, the principal and interest will remain the same, but the costs of escrow accounts, such as property taxes and homeowner insurance, can rise. That’s why payments usually increase even if the fees haven’t changed.
2. How often can I change my mortgage payments?
Lenders typically review their escrow accounts annually. If there is a shortage, payments can increase once a year. However, if you have an adjustable mortgage (ARM), interest rates and payments may change annually or six months after the fixed period ends.
3. Can I prevent my mortgage payments from increasing?
You can’t control tax assessments or premiums, but you can also shop for insurance, sue your property tax assessment, and refinance to stabilize your payments. Deleting the PMI once you reach 20% shares is another way to prevent unnecessary increases.
4. Why did my lack of escrow account raise my mortgage?
If your escrow account does not have enough funds to cover property taxes or insurance, the lender will spread the shortfall over future monthly payments. This will keep your accounts from falling behind and ensure your invoices are paid on time.
5. Will refinance reduce my mortgage payments?
Yes, you can reduce your monthly payments by refinancing for a lower fee or longer period of time. You can also remove FHA mortgage insurance or switch from your arm to a fixed-rate loan for greater stability.
