Why does my mortgage payment change?

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Yes, it is possible that your mortgage payment will change over the life of the loan. Even with a 15 or 30 year fixed rate mortgage, your monthly payment can change. The primary reason for that is due to fluctuations in your taxes and insurance which are often paid via an escrow account set up with your lender.

Many homeowners opt to have their mortgage servicer pay their private mortgage insurance (PMI) and taxes directly. This is done by taking a portion of your monthly payment and moving it into the escrow account and the funds there will be used to pay your taxes and insurance.

For government-backed mortgages like FHA and USDA loans, borrowers are required to have an escrow account, however conventional mortgages have the option. While many like the peace of mind of not having to worry about it, others might opt to pay taxes and insurance directly.

Why Taxes Go Up After First 12-Months

Be warned, your taxes will likely go up after your first year of home ownership. Why? Because when you purchase a home, you reimburse the seller for taxes paid covering 6-months of taxes on the property. However, you pay this at the seller’s tax rate. But once the property is reassessed, look out because your taxes might increase.

Most local governments reassess a property after a sale. If that property has increased in value since the last assessment, the taxes go up accordingly. This can be a shock to many when the next year’s taxes due increase dramatically. In addition, if your paying your taxes via an escrow account, you must make sure you’re distributing an adequate amount from your monthly payment because a shortage in your escrow account can result in penalties.

Why Homeowner’s Insurance Increases

There are many reasons your home owner’s insurance might have gone up, and if you pay these costs via an escrow account, they likely increased your mortgage payment. Here are a few of the most common reasons this happens:

  • You filed a claim which might mean higher premiums.
  • You improved your property and it reassessed at a higher value.
  • Inflation often results in an increase in insurance rates.
  • Your credit is actually an indicator of your insurance score which impacts your premium. Declining credit can result in increases in insurance.