Your Mortgage Payment Went Up and You Did Not Refinance and Here Is What Actually Happened
The Payment Increase That Catches Homeowners Off Guard
You have a fixed-rate mortgage. You did not refinance. Nothing about your loan changed. And yet your monthly payment just went up. Travis Egan explains this to past clients regularly and wants homeowners to understand what is actually happening before they spend time worrying that something is wrong with their loan.
What an Escrow Shortage Actually Is
The most common culprit is an escrow shortage. Most mortgage payments include not just principal and interest but also a monthly contribution into an escrow account that the lender uses to pay your property taxes and homeowners insurance when those bills come due.
At the start of your loan the lender estimated what your taxes and insurance would cost and divided that annual amount by twelve to set your monthly escrow contribution. If your property taxes increased when the county reassessed your home’s value or if your homeowners insurance premium jumped at renewal the escrow account collected less than it actually needed to cover those bills.
When the lender pays out more than the escrow account held it creates a shortage. To resolve that shortage the lender adjusts your monthly escrow contribution upward to cover both the current year’s projected costs and to repay the deficit from the year prior. The result is a higher monthly payment that has nothing to do with your interest rate or your loan balance.
Why This Is Common Right Now
Property taxes in many markets have risen as assessed values have adjusted to reflect appreciation from recent years. Homeowners insurance premiums have also increased significantly in many markets with renewal increases of twenty, thirty, and forty percent becoming common in some regions. Both of those inputs can create an escrow shortage even when the homeowner has done everything right.
It is not a sign something is wrong with your loan. It is the escrow system responding to higher costs for taxes and insurance by collecting more each month to cover them.
What to Do If This Has Happened to You
Understanding what triggered the increase is the first step. Travis explains this to past clients all the time and it is a straightforward conversation once the source of the shortage is identified.
Got questions about an unexpected payment increase or anything else related to your mortgage? DM Travis Egan directly. He is here to help. Semper Fi.
Sources
ConsumerFinancialProtectionBureau.gov
FannieMae.com
MortgageNewsDaily.com
HUD.gov
Investopedia.com
