Why Did My Mortgage Go Up $100?
Demystify an unexpected mortgage payment increase. Learn the underlying factors and clear steps to understand and address the change.
An unexpected increase in your monthly mortgage payment can be concerning. While it might feel sudden, mortgage payments can adjust for various legitimate reasons over the life of your loan. Understanding these factors helps you investigate the specific cause and determine appropriate next steps.
Common Reasons for Mortgage Payment Increases
A frequent reason for a mortgage payment increase involves adjustments to your escrow account. This dedicated fund, held by your lender, pays for property taxes and homeowner’s insurance premiums on your behalf. Lenders require these accounts to ensure timely payment of these obligations, protecting their interest. Each year, your lender conducts an escrow analysis, reviewing past tax and insurance costs and projecting future needs.
If property taxes or homeowner’s insurance premiums increase, your escrow account needs more funds. Property taxes can rise due to reassessments or new local levies. Homeowner’s insurance premiums have also seen substantial increases. When these costs go up, and your escrow account has a shortfall, your lender will increase your monthly mortgage payment to cover the deficit and ensure enough funds for future payments.
An Adjustable-Rate Mortgage (ARM) structure can also cause a payment increase. Unlike fixed-rate mortgages, ARMs have interest rates that change periodically after an initial fixed-rate period, often three to ten years. After this, the rate adjusts based on a benchmark index, like the Secured Overnight Financing Rate (SOFR), plus a fixed margin.
If the benchmark rate rises, your mortgage interest rate and monthly payment will increase. ARMs include caps limiting how much the rate can change during each adjustment period and over the loan’s lifetime. While these caps prevent drastic increases, adjustments within limits can still result in a higher payment.
Private Mortgage Insurance (PMI) can also change your mortgage payment. PMI is generally required for conventional loans with less than a 20% down payment, protecting the lender from default risk. While often included in your monthly payment, PMI costs can increase or be added if a loan modification changes your loan-to-value (LTV) ratio or other terms.
How to Identify the Cause of Your Payment Increase
To identify the reason for your mortgage payment increase, review your mortgage documents. If you have an escrow account, your annual escrow analysis statement is a primary source. Lenders must send this statement within 30 days of their annual review, detailing past activity and projecting future costs. This document shows any changes in property taxes or homeowner’s insurance premiums that led to an escrow shortage and a subsequent payment adjustment, including a breakdown of principal, interest, and escrow components.
Next, examine your monthly mortgage statement for changes in your payment breakdown. These statements provide an overview of your loan, including balance, interest rates, and payment history. Look for new line items or shifts in amounts allocated to principal, interest, taxes, or insurance. Your statement may also contain notices explaining changes to your interest rate or other loan terms.
If you have an Adjustable-Rate Mortgage, review your original loan documents. These outline the adjustment schedule, the index used to calculate your rate, and any periodic or lifetime interest rate caps. Understanding these terms helps you anticipate when rate adjustments might occur and how they are calculated. Your monthly mortgage statement for an ARM may also indicate when the interest rate will next adjust.
Actions to Take After a Payment Increase
Once you have identified the likely reason for your mortgage payment increase by reviewing your documents, contact your mortgage servicer. This is the company listed on your mortgage statement. Have your account number ready and ask specific questions based on your escrow analysis or mortgage statement. Request a detailed explanation for the increase, a copy of your escrow analysis, and supporting documentation for tax or insurance changes.
After speaking with your servicer, verify the information by cross-referencing it with official notices. If the increase is due to property taxes, check your tax bill from the local assessor’s office. If homeowner’s insurance premiums are cited, compare figures with statements from your insurance company. This cross-verification confirms the servicer’s explanation accuracy.
If the increase stems from an incorrect property tax reassessment, you may challenge it. Contact your local tax assessor’s office to understand appeal procedures and deadlines, often requiring a formal complaint and evidence for a lower valuation. If the increase is due to rising homeowner’s insurance premiums, explore options from other providers. Shopping for new quotes might help reduce that portion of your payment. Finally, adjust your personal budget to accommodate the new, higher mortgage payment to maintain stability.