Every month, you make your mortgage payment. Whether online or through the mail, month after month, it’s always the same; identical statement, identical payment. Then one day you find yourself asking: Why did my mortgage go up? Or, why did it go down? Is it a mistake? Here are the most common reasons why mortgage payments change.
Adjustable Rate Mortgage
Though it’s not the most popular home loan, many homeowners have an adjustable rate mortgage. This type of mortgage “adjusts” as the name implies, meaning interest rates on your loan can change periodically. Depending on the market, fluctuations in interest rates can have an effect on the mortgage payment.
Municipalities perform property reassessments that can affect property taxes, causing your mortgage payments to go up or down. When this happens, the change will be reflected in your escrow payment. Escrow is included in your monthly mortgage payment and includes items such as property and school taxes and homeowners insurance.
Many homes are eligible for exemptions, which decrease the amount of property taxes due from the homeowner. For example, a homestead exemption allows homeowners to pay taxes on a value less than the assessed value of the home—but it usually requires you to live at the residence to be eligible. If you move from the property but maintain ownership, the homestead exemption is lost, and the taxes (and your payment) will increase. Bottom line: any change in your exemptions will affect your property taxes, which can result in a change in the monthly payment.
Homeowners Insurance is typically renewed annually. At that time, many borrowers will see an increase in their premiums. When premiums increase, the monthly escrow amount will also increase, and so will your monthly mortgage payment.
Adding an Escrow Account
Escrow accounts, which accrue for property taxes and homeowners insurance, are often included with the mortgage and are collected each month with your mortgage payment. In most cases, these accounts are set up at the beginning of the mortgage, but in some cases, escrow accounts are established at a later date. If this occurs, your mortgage payment will increase to cover the costs of these expenses.
Shortage of Funds in Escrow
Occasionally, the cost of property taxes and/or homeowners insurance increases enough to cause a shortage of funds in escrow. When this happens, the shortage plus any increases will be added to the amount collected each month for escrow. This will ultimately increase your monthly mortgage payment.
While many increases are beyond your control, you may be able to reduce the costs of others, such as obtaining new, less expensive homeowners insurance or refinancing an adjustable rate mortgage (ARM) to a fixed rate mortgage.
So, when you ask yourself Why did my mortgage payment go up or down?, you will likely find the answer included here. If you’re still not sure, or you have other questions about your mortgage payment, contact us now.