What are the reasons why your mortgage payment can increase? My monthly mortgage payment including taxes and insurance increased significantly and I do not know why.
There are multiple reasons why your monthly mortgage payment can increase. As we outline below, the explanation for an increase in your payment depends on the type of mortgage you have and if you are you required to pay impounds.
If you have a fixed rate mortgage the only reason your monthly payment can increase is if you have an escrow or impound account and your property tax or homeowners insurance increase or if you have a deficiency in your escrow account
If you are required to pay impounds and your property tax or homeowners insurance increase, your monthly mortgage payment also increases. To offset this increase you can try to find less expensive insurance or potentially submit an appeal to reduce your property tax assessment. There is no guarantee that your county property tax assessor grants your appeal but it does not hurt to try.
Another potential reason for your payment to increase is if you have an impound account -- also known as an escrow account -- deficiency. In short, an impound account deficiency occurs when there is a shortfall in the account. This usually happens because the lender has not received an updated property tax statement or homeowners insurance bill and has been under-charging you for these items for several months.
If your escrow account is deficient, your required monthly payment may be increased temporarily to address the deficiency. Your current mortgage statement should outline the components of your monthly payment including principal, interest, property tax, homeowners insurance and any escrow account deficiency. If you have an escrow account deficiency the increase in your monthly payment should be short term and you should confirm this point with your lender.
If you fall into this category, I recommend that you contact your lender and request an escrow account history for the past several years. An escrow account history enables you to review an itemized breakdown of any payments made into the account and any distributions out of the account to pay for property tax, homeowners insurance and other applicable expeneses.
The escrow account history enables you identify changes in specific items that contributed to the increase in your mortgage payment. You can also use the account history to compare property tax and homeowners insurance payments made from the account to the actual bills you received for those items and to identify any account deficiencies.
We should emphasize that if you do not pay impounds -- which means you pay your property tax and homeowners insurance directly -- and you have a fixed rate mortgage, your monthly mortgage payment should never increase.
If you have an interest only or adjustable rate mortgage (ARM) your monthly payment may increase if your mortgage rate increases
If you have an adjustable rate mortgage (ARM) or interest only mortgage your monthly mortgage payment may increase when your loan adjusts. This typically happens when interest rates rise. Additionally, if you have an interest only mortgage, your payment can jump when you are required to start paying principal.
Use ourmortgage refinance calculatorto determine if you can save money by refinancing
If you have an ARM or an interest only mortgage you may want to consider refinancing into a fixed rate mortgage. The interest rate and monthly payments for a fixed rate mortgage do not change or increase over the life of your mortgage.
The table below shows refinance rates for leading lenders in your area. We recommend that you contact multiple lenders to find the best loan terms.
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If you have a negatively amortizing mortgage and your loan balance increases, your monthly payment increases
In short, with a negatively amortizing mortgage, your principal balance may increase over the course of your loan instead of decreasing like a mortgage with regular amortization. If you obtained your mortgage after 2008, then it is unlikely that you have a negatively amortizing loan because these programs are no longer available.
In closing, it is important to highlight that your mortgage payment can only change if your loan terms allow it. You can determine what type of loan you have, how your monthly payment is calculated and understand your loan terms by reviewing your mortgage note.
If you cannot understand why your monthly payment increased after reviewing your mortgage note, current account statement and escrow account history then I recommend that you contact your lender for an explanation. If you are not satisfied with the reason provided by your lender I advise you to file a complaint with your state attorney general or the Consumer Financial Protection Bureau (CFPB) to review your situation more closely.
Consumer Financial Protection Bureau Contact Information
Sources
“How do mortgage lenders calculate monthly payments?” CFPB. Consumer Financial Protection Bureau, March 3 2017. Web.
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