During last year’s holiday season, my spouse and I got a notification that came as quite a surprise. Our payment for the 30-year fixed-rate mortgage increased by $106 each month, soaring to over $2,789.
As homeowners, we often allocate a specific sum of money for home-related expenses. clearing our mortgage Every month, we failed to consider the possibility that our mortgage payment might go up.
Mortgage payments can change yearly , particularly if you pay property taxes or insurance via your mortgage servicer. Various factors can cause an increase in your monthly mortgage payment, regardless of whether you have a fixed-rate or not. adjustable-rate mortgage. Below are the steps to get ready, along with potential ways you could qualify for one: lower your monthly amount .
Read more: Homeownership Expenses Go Beyond Mortgages. Discover Additional Costs Involved.
Escrow account shortages
The main components of a mortgage payment are the principal and the interest. The principal represents the amount of money you initially borrow, whereas the interest is the additional charge for using that borrowed funds. In case you opt for a fixed-rate mortgage, your payments toward both the principal and the interest will stay constant throughout the life of the loan unless you choose to refinance or repay it entirely.
However, if you removed a loan, FHA loan or put down less than 20% with a traditional mortgage, your lender might have established a mortgage escrow account, into which funds are deposited to manage part of the additional homeownership expenditures. Typically, this includes paying for property taxes and homeowner’s insurance; thus, a segment of your total monthly mortgage contribution goes towards covering these fees.
In my situation, we faced an additional charge of $106 every month to address a deficit in our escrow account. The required minimum balance set by our loan servicing company was not met because there was a significant rise in both our homeowner’s insurance and property tax expenses. To compensate for this gap over the following year, our monthly mortgage payment went up accordingly.
Interest rate changes
If you're wondering why your mortgage payment went up, first look at the type of home loan and your interest rate. If you took out an adjustable-rate mortgage For an Adjustable Rate Mortgage (ARM), you should anticipate significant shifts in your mortgage payments because of the changing interest rates. Based on market conditions, you might have to prepare for substantially increased monthly payments due to a rise in the rate.
Property tax increases
Property taxes might be part of your monthly mortgage payment, and these typically trend in one direction: upward. Based on CoreLogic data, the yearly property taxes for single-family homes rose by an average of 5.1% from 2023 to 2024 .
Deborah Foley, who works as a public relations manager at SolarReviews in Charlotte, North Carolina, has experienced the impact of rapidly rising property taxes. In 2017, when she and her spouse bought a house in a developing area, the initial tax assessment stood below $100,000. However, since they acquired the property, this figure has multiplied more than fivefold, causing their property tax expenses to surge nearly twofold.
If you receive a higher tax assessment due to the evaluated worth of your property, you aren’t obligated to agree with it right away, noted Shmuel Shayowitz, who leads lending operations as the chief lending officer. Approved Funding "If you notice that your property taxes have risen significantly more than those of your neighbors, challenge this with your local municipality and request a fresh assessment from your loan provider," he advised.
Homeowners insurance spikes
Homeowners insurance represents another cost that might be part of your regular monthly payments and tends to increase over time. For instance, between 2018 and 2022, homeowners insurance premiums increased at 8.7 times higher than the inflation rate Homeowners in specific regions across the nation experienced even greater increases in prices: In states like Texas, Colorado, Arizona, and Utah, residents witnessed over proportionate rises. 50% jumps between 2017 and 2023.
Although many people believe there’s little recourse in such circumstances, Shayowitz advised homeowners to explore alternative insurance options. “Look for a more advantageous policy or renegotiate your current terms and conditions,” he noted. Additionally, he suggested bundling home and auto insurance policies to achieve savings.
Read more: Rising Insurance Costs Due to Increased Natural Disasters: Actions for Homeowners
How to determine if your mortgage payment will increase
Expensive homeownership costs It can cause significant strain on your monthly finances. Although an uptick in your mortgage payment is typical, scrutinize the details to catch any possible mistakes. Your regular charge might have risen because of additional service charges, or perhaps your lender has erred.
Prior to your monthly mortgage payment adjusting, you will probably receive an early notification detailing the amount due along with the reasons for the change. This can assist you in getting ready for the adjustment.
"Should your loan be subject to an ARM adjustment, your lender must inform you two to three months prior to the increase in your payments," stated Sebastian Frey , a broker at Compass based in California. “Should your taxes and insurance costs rise—which typically happens each year—your lender ought to inform you 30 to 60 days prior to increasing your monthly payment.”
If your payments are going up because of an escrow deficiency, you have the option to discuss with your loan servicing company the possibility of paying off the deficit as a single large payment. Personally, I opted to incrementally increase my regular monthly payments instead of contributing over $1,200 all at once.
Ways to Reduce Your Mortgage Payment
Many various elements may cause your mortgage payment to increase; however, several methods can also help reduce these payments. Occasionally, you might get an escrow analysis indicating a surplus due to your contributions, leading to adjustments that decrease your monthly cost.
There are additional options under your control to make your payments more manageable:
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Eliminate private mortgage insurance: If your down payment was under 20% for a conventional mortgage, you might still be required to pay private mortgage insurance premiums However, you don't need to wait until you reach a 20% equity stake in your property. eliminate PMI Given the significant rise in home values across the nation over the past few years, you might want to assess your property’s worth. Should your home have increased substantially in value, consider discussing with your lender about arranging for a new appraisal. In 2020, we had our apartment reassessed, which allowed us to get rid of PMI and cut down our monthly expenses by over $225.
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Refinance: If you find yourself having difficulty meeting your monthly payment obligations at present, consider exploring alternative options. ways to reduce expenses through refinancing options Remember though, you must identify a blend of interest rate and loan duration that results in significant monthly reductions. Additionally, get ready to shoulder the closing expenses for your new mortgage.
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Recast: A lesser-known option, recasting your mortgage It requires paying a significant amount of money which your lender then uses to adjust your monthly payments accordingly. This can be beneficial if you receive regular substantial earnings like quarterly bonuses or an annual lump sum. Before proceeding, consult with your lender regarding available choices. Do not simply make a large payment expecting automatic recalculation of your terms.
If reducing your mortgage payment isn't an option, you can speed up becoming debt-free by paying down your home loan ahead of schedule I recently signed in to check my mortgage account and found out that adding an extra $100 each month could shorten our loan repayment period by 22 months.
Therefore, when you find an unexpectedly large sum in your bank account, think about putting more into your main amount Every little amount helps as you strive for homeownership free from the weight of a mortgage.
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