Even if you have a fixed-rate home loan, your mortgage payment may go up over time. It’s no fun when it happens, especially if you carefully built your budget around the monthly payment you were counting on. But there are several reasons why your payment could go up (and keep increasing) unexpectedly. And no, it doesn’t mean you did something wrong.
Read on for a look at some of the factors that could affect your payment and ways you can deal with an unplanned hike to your monthly housing costs.
Table of Contents
Key Points
• Mortgage payment increases can be due to escrow adjustments, such as changes in property taxes or homeowners insurance premiums.
• Adjustable-rate mortgages (ARMs) can experience payment changes based on market interest rate changes.
• Interest-only mortgages will see payments rise once the interest-only period concludes and principal payments are required.
• Missed payments or late fees are another factor that can cause monthly mortgage bills to increase.
• Strategies to manage higher payments include shopping for cheaper insurance, appealing property tax assessments, removing private mortgage insurance, or refinancing.
Common Reasons for Mortgage Payment Increases
If your monthly payment changes, it may not have anything to do with your mortgage principal or your interest rate. Some common reasons why a mortgage payment can go up include:
1. Escrow Account Adjustments
As part of the home loan process, it’s likely your lender set up an escrow account to collect money for costs like property taxes, homeowners insurance, and when necessary, private mortgage insurance (PMI) and flood insurance. Lenders typically perform an annual escrow analysis, and if any of those costs have gone up year over year, you can expect to see an increase in your payment.
2. Property Tax Change
There are a few different factors that can cause your property taxes to rise. If your home is worth more (because you made significant improvements, for example, or houses in your area have been selling for higher prices), your local government may reassess your property’s value, which results in a larger property tax bill. You also might see a tax increase if your city or county needs more money to build a school or to fund its yearly budget. And you could end up paying more if you lost a property tax exemption.
If your property taxes are included in your mortgage payment, your escrow contribution will likely reflect any increase.
3. Homeowners Insurance Premium Increase
If you make a change that adds to the cost of your homeowners insurance policy — or if your insurance company raises its rates — you can anticipate that your lender will collect more from you each month to cover that increase.
4. Private Mortgage Insurance Change
Borrowers who purchase a home with less than 20% down usually must pay for private mortgage insurance (PMI) until they build up more equity. The cost of your PMI should not go up over the course of your loan. In fact, it should decline as your principal balance declines, and when you reach 20% equity in your home, you can request that PMI be removed. If you see a PMI increase on your monthly bill, check in with your lender to ascertain whether an error is to blame.
5. Interest Rate Adjustment
If you have a fixed rate mortgage, your interest rate should stay the same for the length of your loan. But if you have an adjustable-rate mortgage (ARM) and your loan’s introductory period has ended, your interest rate may start going up or down based on current market rates. Each time your loan hits an adjustment period — typically every six months or once a year — your lender will recalculate your payment. (The length of your adjustment period should be included in your loan documents.)
6. Interest-Only Period Ended
Some lenders offer interest-only mortgages that allow borrowers to postpone making principal payments for a predetermined period (usually from three to 10 years). During that time, homeowners pay only the interest that’s accumulating on the amount they borrowed — no money is going toward the amount actually owed on the home. If you have this type of loan, and the interest-only period has ended, your monthly payment amount will increase to include the portion of the payment that will go toward the principal.
7. Loan Terms Changed
It’s also possible that a change in your loan terms pushed up your payment. If you’re a service member, for example, and your active-duty status ended one year ago, your mortgage rate may no longer be protected under the Servicemembers Civil Relief Act (SCRA), which caps rates at 6.00%. Instead, your loan will revert to the original higher rate you agreed to when you took out your mortgage, causing your payments to rise.
8. Missed Payment or Late Fee
Did you make a late or partial payment, or did you miss a payment? If so, your lender may have tacked a penalty fee onto your current bill or included the unpaid balance. (If it’s your first time paying late, you may be able to get the fee reduced or eliminated.) It’s a good idea to keep in touch with your loan servicer when you make a late payment or fall behind. You may be able to negotiate a payment plan so you can make sure you get back on track.
If you’re experiencing unexpected financial troubles, your loan servicer may agree to temporarily lower or pause your mortgage payments through a process called mortgage forbearance. Forbearance can help you avoid foreclosure, but when the forbearance period ends, the loan servicer will expect repayment — sometimes with a lump sum, or by adding the amount owed to the end of the loan term, or through monthly installments that can increase the cost of your payments for a while.
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How to Avoid Unexpected Mortgage Payment Increases
Because there are so many factors that can cause the amount of your monthly mortgage payment to fluctuate, it can be important to keep an eye out for any changes. (Especially if your payments are automatically withdrawn from your bank account.)
Mortgage servicers are generally required to provide a mortgage statement for each billing cycle, and that statement should include:
• The amount you owe and when it’s due
• A breakdown of how the payment will be applied to principal, interest, and escrow, as well as any fees or amounts that are past due
• Account details, like your interest rate and outstanding principal balance
• Contact information for your loan servicer
Your statement will likely have the answers to any questions or concerns you have. But if you need more help, you can call the company you make your monthly payment to. It’s possible they simply made an error, or that you missed a notification about a recent change to your payment amount.
What to Do If Your Mortgage Payment Goes Up
If a higher mortgage bill is pushing you out of your comfort zone, there are a few steps you might consider to help get your payment back in line with your budget, including:
Shopping for a Lower Homeowners Insurance Premium
Homeowners insurance can get expensive, and the cost continues to rise, so it can make sense to shop around for a lower rate once in a while. You could call around for information on what various carriers have to offer or work with an insurance broker. Or you may prefer the convenience of using an online comparison site. (SoFi’s platform, for example, lets you compare quotes from up to 30 top insurers using Experian Insurance Services.) Remember that bundling your home and auto policies may help you find a lower rate, and you might be eligible for other discounts, as well.
If you decide to make a change, be sure to let your mortgage servicer know.
Appealing Your Property Tax Assessment
If your property taxes have gone up, your new assessment should include instructions on how to file an appeal. If not, you can call your property appraiser’s office for information and to voice your concerns. You might also benefit from researching any exemptions for which you may be eligible. Before requesting an assessment, try to research property tax assessments of other properties similar to yours in your area, to make sure other assessments really are lower than your own. Inviting further scrutiny of your property by assessors can sometimes backfire and result in higher taxes.
Removing Your Private Mortgage Insurance
Your mortgage servicer should automatically cancel your PMI payments when you reach 22% equity in your home or the midpoint of your loan term (whichever comes first). But once you know you’ve reached 20% equity, you can reach out to your mortgage servicer and request that they cancel your PMI to lower your payment.
Refinancing to a More Manageable Mortgage Payment
A mortgage refinance means replacing your current mortgage with a new one that has terms that better suit your current needs. You might be able to qualify for a lower interest rate, for example, or you could look at changing your loan length to lower your monthly payment. “It’s important to understand that not every mortgage refinance will save you money on interest. For example, if you extend the repayment term, you may have smaller monthly payments, but you’ll end up paying more money over the course of the loan,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.
Refinancing typically comes with some fees, as well, so you’ll want to be sure to run the numbers when considering this move. But if refinancing will enable you to stay current on your monthly payments instead of falling behind, it may be a wise move for your mortgage (and your credit score).
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The Takeaway
The amount of your mortgage payment may fluctuate from time to time — but that doesn’t mean you should ignore it when it happens. If you’re unsure about why your payment changed, you can check your monthly statement or talk to your mortgage servicer for information. And if you want to lower your payment, you can explore getting rid of PMI or refinancing your mortgage.
SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.
FAQ
Why would my mortgage payment go up even though my interest rate is fixed?
A fixed interest rate doesn’t mean your monthly mortgage payment won’t ever change. If your mortgage servicer is paying for your property tax, homeowners insurance, or private mortgage insurance (PMI) from an escrow account, and one or more of those costs go up, you can expect your monthly payment to reflect the increase.
Can property taxes increase every year?
There aren’t any federal laws that cap property tax increases; it’s up to state and local governments to put limitations in place. You can look for information relevant to your area on your property appraiser’s or tax assessor’s website.
What can I do if I can’t afford my new mortgage payment?
You can talk to your lender about your concerns and ask for options that could help. And you may want to look into refinancing to a new loan with terms that better fit your needs.
Will my mortgage payment go back down?
It’s possible your payment could go back down, if the costs driving it up can be reduced. But in the meantime, you may want to take some proactive steps to be sure the new payment is based on current and correct information. If the new payment is accurate, you can research options that could lower your payments, such as trimming your insurance costs or refinancing.
How often does escrow get recalculated?
Lenders typically perform an escrow analysis on an annual basis.
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