Why Do Mortgage Payments Increase?
When you first get your mortgage, you’ll probably take into account the amount you’re paying as part of your overall expenses in your monthly budget, along with food, transportation, and other living expenses. But what if your mortgage payments increase?
Unfortunately, it can happen -- even if you have a fixed-rate mortgage. In this article, we’ll look into how and why mortgage payments increase, and what you can do about it.
Escrow Payments Typically Increase Due to Tax Changes
If you do have a fixed-rate mortgage, your interest rate won’t be going anywhere -- so the major aspect of the loan that can change is the amount of money your lender requires you to put in your escrow account each month.
Your escrow account, as you might already know, is a third-party account that will hold funds to pay for your homeowner’s insurance and property taxes. In most cases, you’ll have to put between six months and a year’s worth of both of these expenses into the account in advance, and then continue to pay them on a monthly basis.
Now, the most common reason for an increase in required escrow payments is a change in property taxes. Property taxes are reassessed in different rates in different areas -- some every year, others every other year, and yet others every 3-5 years. Homeowners should check their individual county to see how often taxes could be changed.
Savvy Homeowners May Want to Appeal Their Property Taxes
If you’re hit with a heavy increase in property taxes after a new assessment, don’t panic; you may be able to appeal your property taxes in order to get a significantly reduced rate. Your property taxes are calculated based on the “fair market value” of your property -- basically, what it might sell for today if it was on the market.
Since many areas don’t even send out a real property assessor, and instead use automated tools, they often reassess the value of a property -- and that could cost you thousands each year. In fact, some estimates suggest that between 30 and 60% of all homes in the U.S. could be being assessed for more than they’re actually worth.
Despite the potential benefits of a property tax appeal, you should be careful to ensure that you don’t actually increase your taxes due to the appeal, since some counties actually have the right to do this. To avoid this, check with your county government and take a close look to see if your property is actually over-assessed before turning in any paperwork. This can involve:
Checking out the market value of similar homes in your neighborhood
Taking a look at any major repairs your home might need
Visit your county assessor’s website to check for any errors in your property’s description (especially those that might make it appear more valuable than it is)
Other Reasons for Escrow Increase: Miscalculations or Homeowner’s Insurance Hikes
While property tax increases are usually the most common culprit for escrow increases, they aren’t the only potential source. In some cases, your lender could have simply miscalculated your taxes or homeowner’s insurance payments, and are now-readjusting your escrow payments to reflect an accurate amount. In addition, homeowners insurance rates can also rise every few years, so you’ll likely have to pay for that at some point as well.