Family sitting in kitchenYou closed your loan and your mortgage payment hasn’t changed since. You make your payment every month, and everything settles into a nice pattern of normalcy. It’s all very pleasant.

Suddenly, there comes a month when your mortgage payment has gone up. What’s the deal? Here are the biggest reasons your mortgage payments change.

Property Tax Changes

Your property taxes going up or down can cause a mortgage payment change. Most people pay their taxes and insurance into an escrow account. Escrow accounts are helpful because they mean you don’t have to pay your entire tax bill in one shot. Instead, your taxes are spread out in equal payments over the course of the year.

If there’s a shortage in your account because of a tax increase, your lender will cover the shortage until your next escrow analysis. When your analysis takes place, your monthly payment will go up in order to cover the time you were short and to cover the increased tax payment going forward. Your mortgage servicer only does an escrow analysis once a year, and it won’t necessarily be the same time that your property tax is evaluated.

Some good news is that your tax payments will only change in certain situations.

Reassessment

Occasionally, your property value will be reassessed, and this will cause a change in your taxes that may cause your mortgage payment to go up or down.

Different locations have different requirements for how often property value is reassessed. It could be once every year or two, or a city may choose to reassess only when a house changes owners.

Exemptions

The loss of tax exemptions can also drive your mortgage payment up. Some states and municipalities require that you reapply for your exemptions every year.

This aspect of your property taxes may also cause confusion if you’ve gotten a tax bill estimate from the previous homeowner. They may qualify for exemptions that you don’t and vice versa.

Homeowners Insurance

If you have a mortgage, you’re required to have homeowners insurance. It protects both you and your lender against damage to your house. If you don’t have a current policy or yours has expired, your lender may find one for you.

If your lender finds the insurance, it may be more expensive than it would be if you shopped around for your own policy. This can cause your mortgage payment to increase.

A shortage can occur in your escrow account if you change homeowners insurance policies, and your lender has to make unanticipated payouts. This may also happen if there are increases in the cost of premiums, even if you have the same insurance carrier.

Adding an Escrow Account

As a homeowner, you sometimes have the option of choosing to have an escrow account or making your tax and insurance payments on your own when they come due. You may choose to have an escrow account added at some point over the term of your mortgage so you can stop making lump sum payments.

Adding an escrow account will increase your mortgage payment, in order to cover your monthly tax and insurance payments. You’ll also have to put in a little bit extra upfront in order to set up the account. The good news is that it won’t be more than one-sixth of your total escrow expenditures for the year.

If you miss a tax or insurance payment, your state or local government may choose to initiate a foreclosure or impose fines. To avoid this, a lender or servicer may require that an escrow account gets set up following a missed payment, to make sure the payments are made going forward.

Rate Change

Your mortgage payment also changes after a certain period if you have an adjustable rate mortgage (ARM).

ARMs have a rate that’s generally lower than comparable fixed rates. After some time (usually 5 or 10 years), the rate becomes variable and changes once a year, riding the seesaw movements in the global financial markets. Your mortgage is then re-amortized over the remainder of the loan term at the new rate.

Your mortgage payment will go up or down with the rate change. It’s important to note that there are limits to how much your rate can go up from the initial rate you were given.

Do you have any questions about mortgage payment changes? Let us know in the comments.

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This Post Has 12 Comments

  1. My mortgage rate goes up every month. I always pay, I have insurance and taxes paid outside the mortgage. There is no escrow. The interest rate changes (increases) EVERY SINGLE MONTH. This was not the case previously. It is an adjustable rate (since 12 years now), but the payment amount only changed once a year. Now every month. What is going on?
    Sondra

    1. I’m not sure how that’s possible. A traditional ARM only adjusts once per year. The only thing I can think of is if you had a line of credit on the home. Then your payment would change based on how much credit you have used.

      1. No, there is no line of credit on the loan. It is the same loan it has been since 2005. I was never once late with a payment through all those years. When the loan was with countrywide and then with Bank of America, it adjusted once a year. Now that is with Nationstar, it goes up each month, as they tell me this is justified because the Feds raise their rates. Never before did I have these stressful conditions with that loan. I do not understand that. It is also confusing, because the balance is paid down more and more each month and in th eoast this decreased the payment amount. Now it only goes up and up, no matter how much I pay it down.
        SOndra.

        1. Hi Sondra:

          I think the only thing I can really recommend at this point as far as that particular loan is concerned is to look in your original mortgage paperwork. Unless you’ve refinanced since that time, no matter who owns the loan, they have to honor the terms of the original agreement. It should say how many times per year your interest rate can go up or down with market conditions. I can tell you that it’s not common to have a loan (outside of maybe a line of credit, which is why brought that up) where the mortgage payment changes every month.

          Another option you might look into his refinancing that loan into one with more traditional terms. We offer many fixed-rate loan options. And if you opt to go with an ARM again, the ones we offer typically adjust once per year. If you would like to go over your options, you can do so through Rocket Mortgage or talk to one of our Home Loan Experts at (888) 980-6716. Hope this helps!

  2. My payment goes up every year. My property tax and insurance did not go up. I even put in a bit extra each month to escrow, but my payment still goes up. I have a fixed rate. What gives?

    1. Hi Sue:

      That is a bit of a mystery. The only thing I can think of is that you might have an adjustable rate and not know it. I’m going to have one of our Home Loan Experts reach out and help you look into what’s going on.

      Thanks,
      Kevin Graham

  3. If I rent my property to my child do I have to switch my mortgage to an investment property loan even though they are just paying the monthly mortgage amount?

    1. Hi Cindy:

      One thing you might be able to look at is just having your child assume the mortgage if they can qualify. I’m going to have someone reach out to you and help go over your options.

      Thanks,
      Kevin Graham

  4. I would like to know why I originally qualified for a mortgage loan4 years ago but now that rates have dropped, I do not qualify for the lower rate when nothing has changed except my salary has increased?

    1. Hi Paula:

      There are many factors that go into mortgage qualification, but we would be happy to look into it with you. Someone will be reaching out.

      Thanks,
      Kevin Graham

  5. we are switching to a cheaper homeowner policy through a different carrier. will this cause an unanpisitated payout and raise my payment? The new policy is $400.00 CHEAPER.

    1. Hi Ellen-

      Congratulations on the cheaper policy! Because your mortgage company pays for your homeowners policy up front, it could cause an unanticipated out. In order to avoid this, take the refund check you receive from your previous carrier and send that fully endorsed check to your lender. This avoids the potential shortage from two policy payments and you’ll get to enjoy the benefits of the cheaper policy when your next escrow analysis is done. You should get a refund for the difference. Here’s more information on what to do with your refund check. I hope this helps! Have a great day!

      Thanks,
      Kevin Graham

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