Understanding the Annual Escrow Adjustment
As a homeowner, you may have noticed that your mortgage payment has increased after a year. This change is typically due to an annual escrow adjustment, which affects the portion of your payment that covers property taxes and homeowners insurance.
What is Escrow?
Escrow is a special account managed by your mortgage lender. Each month, a portion of your mortgage payment is deposited into this account to cover your annual property taxes and homeowners insurance premiums. The lender uses these funds to pay these expenses on your behalf when they become due.
Annual Escrow Adjustment
Once a year, your lender reviews your escrow account to ensure that it has enough funds to cover your upcoming property taxes and homeowners insurance premiums. If the account balance is too low, your lender will increase your monthly mortgage payment to replenish the funds. This adjustment is necessary to avoid any potential shortfalls in your escrow account.
Factors Affecting Escrow Adjustments
Several factors can influence the amount of your escrow adjustment, including:
- Property Tax Changes: If your property value has increased since the previous year, your property taxes will likely increase as well. This will result in a higher escrow payment.
- Homeowners Insurance Changes: The cost of homeowners insurance can also fluctuate from year to year. If your insurance premiums increase, your escrow payment will also increase.
- Lender’s Estimate: Your lender’s estimate of your property taxes and homeowners insurance premiums may not always be accurate. If the actual costs are higher than the estimate, your escrow payment will need to be adjusted.
Other Reasons for Mortgage Payment Increases
In addition to escrow adjustments, there are other factors that can cause your mortgage payment to increase after a year, such as:
- Interest Rate Adjustments: If you have an adjustable-rate mortgage (ARM), your interest rate may change periodically. This can lead to an increase in your monthly payment.
- Mortgage Refinance: If you refinanced your mortgage, your new loan terms may include a higher interest rate or a shorter loan term, resulting in a higher monthly payment.
- New Fees: Your lender may add new fees to your mortgage payment, such as a late payment fee or a servicing fee.
How to Avoid Unexpected Mortgage Payment Increases
To avoid unexpected mortgage payment increases, you can:
- Monitor Your Escrow Account: Regularly review your escrow account statements to ensure that the balance is sufficient to cover your upcoming property taxes and homeowners insurance premiums.
- Shop Around for Homeowners Insurance: Compare quotes from different insurance companies to find the best rate on your homeowners insurance.
- Consider a Fixed-Rate Mortgage: If you have an ARM, consider refinancing to a fixed-rate mortgage to lock in a stable interest rate.
- Contact Your Lender: If you have any questions or concerns about your mortgage payment, contact your lender for clarification.
By understanding the factors that can affect your mortgage payment, you can better prepare for potential increases and avoid any financial surprises.
I Have a Fixed Rate Mortgage. Why Did My Payment Go Up?
FAQ
Why would my mortgage payment go up after a year?
Is it normal for escrow to increase every year?
Why did my mortgage go up $300 a month?
Can my monthly mortgage payments go up?
Yes, your monthly mortgage payments can go up. For example, if you have an adjustable-rate mortgage, your mortgage payments can go up with each adjustment period (typically annually). If you have a fixed-rate mortgage, you may still see an increase in your monthly mortgage payments due to several common factors.
Why does my mortgage payment go up or down?
Occasionally, your mortgage payment may go up or down due to a property value reassessment. The frequency of property reappraisals can differ by location. It may happen once a year, every 2 years or only when a house changes owners. The loss of property tax exemptions can also drive your mortgage payment up.
Why are my monthly mortgage payments increasing?
If you have a fixed-rate mortgage, you may still see an increase in your monthly mortgage payments due to several common factors. Note that some of the following factors are often coupled with your mortgage payments or taken out of an escrow account on a monthly basis.
Why did my mortgage payment change?
Several things can cause your mortgage payment to change. Check your mortgage statement or contact your servicer and ask them to explain. There are several reasons why your monthly mortgage payment may have changed. Some examples include: You have an adjustable rate mortgage (ARM) and the interest rate changed. Check the type of mortgage you have.