How to Stop Your Escrow Payment From Going Up

An escrow account is a specialized savings account managed by your mortgage lender or loan servicer. Its primary purpose is to collect and hold funds specifically for your property taxes and homeowner’s insurance premiums, and sometimes private mortgage insurance (PMI) or flood insurance. A portion of your monthly mortgage payment is directed into this account, ensuring that these significant annual or semi-annual expenses are paid on time by the lender on your behalf. While designed for convenience, the amount collected for escrow can change, leading to fluctuations in your overall monthly mortgage payment.

Understanding Escrow Increases

Escrow payments can increase for several reasons, often reflecting changes in the underlying costs they cover. One common reason is an increase in local property taxes. As property values rise through reassessments, or if local tax rates are adjusted, the amount required for property taxes will directly increase the funds needed in your escrow account.

Homeowner’s insurance premiums also contribute to escrow fluctuations. Insurance costs can escalate due to various factors, including general inflation, an increase in claims within a specific geographic area, or adjustments to your policy’s coverage.

Another frequent cause for an escrow payment increase is an escrow account shortage. This occurs if your lender underestimated previous year’s property tax or insurance costs, or if these expenses rose unexpectedly. When an annual escrow analysis reveals that insufficient funds were collected to cover the actual disbursements, a shortage is declared. To rectify this shortfall and ensure enough funds for the upcoming year, the lender will adjust your monthly escrow contribution upward to recoup the shortage and cover future expenses.

Managing Property Taxes

Proactive management of your property taxes can help mitigate increases in your escrow payments. Homeowners should regularly review their annual property tax assessment notice. This document details your home’s assessed value and the applicable tax rate, and it is important to check it for any errors or discrepancies. Contacting your local assessor’s office directly can help clarify how your assessment was determined and correct any factual mistakes.

If you believe your property’s assessed value is inaccurate or too high, you have the option to appeal the assessment. This process typically involves filing a formal application with your county’s assessment appeals board, often within a limited timeframe. To support your appeal, you should gather evidence such as recent sales data of comparable properties in your neighborhood, or documentation of physical defects in your home that might lower its market value.

Homeowners should also investigate and apply for any available property tax exemptions for which they qualify. Common exemptions include homestead exemptions, which reduce the taxable value of a primary residence, and exemptions for seniors, veterans, or individuals with disabilities. Eligibility criteria and the application process vary by local jurisdiction, so research specific requirements in your area to determine if you can benefit from these programs.

Managing Homeowner’s Insurance

Controlling homeowner’s insurance costs is another effective strategy for managing escrow payments. It is advisable to regularly shop around for new insurance quotes from different providers. Comparing rates ensures you are getting the most competitive premium for comparable coverage.

Carefully reviewing your current insurance policy can also reveal opportunities for savings. Increasing your deductible can substantially lower your annual premiums. Additionally, inquire about discounts for home security systems or for other home improvements that enhance safety or reduce risk.

Many insurers offer significant discounts for bundling policies, such as combining your home and auto insurance with the same provider. This multi-policy discount can often result in substantial savings on your total premiums. Bundling also offers the added convenience of managing all your policies and payments through a single company.

Managing the Escrow Account

Direct management of your escrow account itself offers opportunities to prevent payment increases. Each year, your mortgage servicer is required to provide an annual escrow analysis statement. It is important to carefully examine this statement, which details the past year’s activity, current balance, and projections for the upcoming year’s expenses, to identify any discrepancies or potential shortages.

If the analysis reveals an escrow shortage, you typically have the option to pay the full shortage amount in a single lump sum. This can prevent the shortage from being amortized and added to your monthly mortgage payment, thereby avoiding an increase tied to the shortfall. However, even if you pay the shortage directly, your monthly payment may still increase if the underlying property taxes or insurance premiums have risen.

You may also request a new escrow analysis from your lender under certain circumstances. This could be beneficial after a significant event, such as making a large principal payment that substantially reduces your loan balance, or if you believe there is an error in the current analysis.

For some homeowners, the option to cancel their escrow account may become available. This is typically an option once a certain amount of equity has been built in the home. Requirements to cancel usually include a strong payment history with no recent delinquencies. If you choose this path, you will become directly responsible for managing and paying your property taxes and homeowner’s insurance bills when they are due. Some lenders may also charge an escrow waiver fee.