Your Mortgage: Wait…why did my payment go up?

Mike Miles from Fountain Mortgage walks you through the mortgage process.

If you have had a mortgage for at least a few years, chances are you’ve received a notice letting you know that you owe the bank more money. Notices like these usually give you two options: 1) Pay a lump sum, or 2) Increase your monthly payment. Why does this happen on a fixed-rate mortgage? That’s a good question. I’ll explain.

In most cases, a mortgage payment consists of the principle and interest (note) plus taxes and insurance (escrows). The reason why I say “most cases” is that not every borrower chooses to include escrows into their mortgage payment. Any eligible borrower that chooses not to include escrows in a payment will never have to worry about a fixed-rate mortgage payment going up. For everyone else, please continue reading.

The principle and interest portion of the payment can never increase on a fixed-rate mortgage loan. That’s because the rate is fixed for the duration of the loan and the loan amount is reduced in accordance with the amortization schedule. It’s the tax and insurance portion of the payment that can change.

Property taxes are reassessed every year in Kansas and every two years in Missouri. Over time, property values change based on real estate market activity. Additionally, the mill levy can change as time passes. If the property tax bill increases, your mortgage payment will eventually increase. Don’t be surprised if your tax amount increases year after year during the current real estate market. Also, don’t be surprised if your payment doesn’t increase right away even though you may notice your tax amount increasing. This delay is because your escrow account has a built-in cushion established on the day you closed your loan. This cushion is meant to absorb tax and/or insurance increases. Once this cushion is exhausted, you can expect to be notified of a payment increase.

Likewise, your insurance premium may change year to year. This could depend on if you add or subtract any coverage amounts within your policy. Your insurance premium can also go up if you file any claims. Insurance typically costs more and more as time passes, and if your premium increases enough to exhaust the escrow account cushion (as mentioned above), you can expect to be notified of a payment increase. Most people don’t pay attention to premiums at renewal time, but it’s a good idea to review and shop the policy to help keep the cost-controlled.

Trying to get answers about your escrow shortage can be frustrating if you are dealing with a bank or a large servicer. My suggestion is to start with where you closed your loan. If that doesn’t work, feel free to call our team. It’s not uncommon for people who aren’t even our clients to call us for help in understanding situations like this. We are always happy to help.

This weekly Sponsored Column is written by the employees of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268