Don’t tell buyers that a fixed-rate mortgage means their payments won’t change. That advice is misguided given rising property taxes and insurance premiums, writes Bernice Ross.
For decades, we’ve taught agents and consumers that if you take out a fixed-rate mortgage, your monthly loan payment will stay the same. For 80% of borrowers with mortgage escrow accounts, that’s simply not true.
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Instead, these borrowers must pay private mortgage insurance (PMI), property taxes, and homeowner’s insurance statements, if required, in monthly installments along with their mortgage payments. Rising insurance premiums and property taxes due to rising prices not only put pressure on borrowers’ budgets, but can even lead to foreclosure.
Knowledgeable agents want to set their clients up for success by educating them about potential new home payment changes in the future. In this article, we’ll break down what knowledge you need to sow and which myths about fixed-rate mortgages you need to bust, especially for first-time buyers.
the client probably has the wrong idea
According to a January 2025 Lereta study, approximately 80% of all mortgage holders have a mortgage escrow account. The idea is to help borrowers pay their insurance premiums and taxes in installments over 12 months, rather than paying them all at once.
What actually happens is that the buyer often ends up paying six to 12 months of these costs upfront when the property closes.
The survey also showed how pervasive this myth is.
45% of respondents mistakenly believe that their payments will remain the same if they have a fixed-rate mortgage. In the past two years, 80% of renters experienced a tax increase, 70% said their homeowner’s insurance premium increased and 27% had their insurance policy terminated by their insurance company. Of these, 65% had difficulty obtaining alternative insurance with another carrier. As for the impact, 49% said a 10% increase in monthly payments would be a hardship, nearly half of that group would consider moving away from a large increase in property taxes, and 27% would consider a large increase in insurance premiums.
Update your buyer interview now
During the buyer interview, it is important to explain the following facts to the buyer:
If you put less than 20% down, you’ll have to pay prorated PMI each month through your mortgage escrow account, in addition to taxes and homeowner’s insurance. Property taxes and insurance premiums vary. Most often they increase. This means the borrower’s monthly payments will also increase. You should warn the buyer about this situation, but avoid trying to explain the details. Instead, contact your lender for the exact details of how their program works. Most lenders are usually happy to walk you through the process and answer any questions a buyer may have.
What happens if the borrower’s escrow account is depleted of funds?
If a borrower’s escrow account runs out of funds, the borrower has three options.
In addition to the monthly payment amount, you will be required to pay the remaining amount in one lump sum. Speak with your lender to see if you can find an alternative way to deal with the situation. During the pandemic, many lenders have utilized a tool called “forbearance,” allowing borrowers to defer payments until the end of the loan or until the property is sold. Other programs gave borrowers more time to pay off their loans or change their interest rates. The worst-case scenario is that your lender may file a notice of default and begin foreclosure proceedings. Most institutional lenders don’t really want to seize their books. If any of your past customers have found themselves in this situation, encourage them to contact their financial institution immediately and consider all available options. Another option is to sell and find a lower cost alternative property.
Offer conversations you don’t want to have but need to have anyway
Unless the buyer is paying all in cash, you should explain how increased property tax and insurance payments during the closing of the property, as well as rising interest rates, could derail the deal. Be especially careful if you sell in areas prone to various types of disasters. This is because this is the main driver of most rate increases. You should know the major risks in your area, such as hurricanes, tornadoes, floods, hail, fires, and earthquakes.
To illustrate this point, Austin, Texas has earned the dubious title of “Flash Flood Capital of the World” due to the extreme thunderstorms that occur here. In addition to flooding, these storms can cause tornadoes, wind damage, and large hail events that can damage roofs, vehicles, windows, and more.
Weather patterns here can produce ice storms that can destroy trees and power lines, and can cause serious injuries if you slip on the ice. All of these events combine to increase insurance premiums here in Texas.
Additionally, your current insurance rate may be higher than it was 12 months ago if your roof is more than 10 years old, your property has had a previous insurance claim, your property has deferred maintenance, or your property is at high risk of wind, hail, wildfire, or flooding. It is important for buyers to purchase insurance to find the best possible deal on a home purchase.
We need to change the conversation around affordability.
Currently, our buyers face a significant threat from rising property taxes and insurance premiums. Continuing to tell buyers that a fixed-rate mortgage means their payments won’t change is not only inaccurate, it can also be dangerous.
The most successful agents have these honest conversations early on. They are updating their interviews with buyers to clearly explain escrow accounts, PMI, and the very real possibility that monthly housing costs will increase over time. We also address insurance and tax risks at the offer stage, especially in high exposure markets.
Buyers who understand these dynamics make better decisions, experience fewer unfortunate surprises, and are far less likely to face hardship or a forced sale after the deal closes. Your role is to provide the client with the complete truth. By doing so, you gain greater trust, build stronger, long-term relationships with your clients, and close more deals.
Bernice Ross is President and CEO of BrokerageUP and RealEstateCoach.com, founder of Profit.RealEstate, and a national speaker, author, and trainer with over 1,500 published articles.
