It may seem reasonable to assume that once you obtain a mortgage, your monthly payment will remain constant for the duration of the loan as long as you repay the lender. For the duration of the loan, it is probable that your monthly mortgage payment will vary, even though this might be the case until you pay off your mortgage and own your home entirely.
This can occur for a variety of reasons, including having an adjustable-rate mortgage (ARM) where the interest rate adjusts after a predetermined number of years.
Continue reading to find out why you might be noticing a change if you’re wondering why your mortgage payments have increased or are going to increase.
Ever wonder why your monthly mortgage payment suddenly jumped up? You’re not alone. It’s a common scenario for homeowners and understanding the reasons behind it can help you plan ahead and avoid financial surprises.
This guide delves into the various factors that could cause your mortgage balance to increase, helping you navigate the complexities and take proactive steps.
Common Culprits Behind Rising Mortgage Balances
1. Escrow Changes:
- Property Taxes and Insurance: Increases in property taxes or homeowners insurance premiums often translate to a higher escrow payment, which is included in your monthly mortgage bill.
- Escrow Shortage/Overage: Your escrow account may experience a shortage if your property taxes or insurance costs rise. This means you’ll need to pay a higher monthly mortgage payment to cover the difference.
2 Mortgage Insurance Removal:
- Private Mortgage Insurance (PMI): If you have a low down payment, you might be paying PMI. Once you reach 20% equity in your home, you can usually remove PMI, resulting in a lower monthly payment.
- FHA MIP and Conventional Loan PMI: These insurance programs also have specific removal guidelines, which can impact your monthly mortgage payments.
3. Service Member Benefits:
- SCRA: Active-duty service members may be eligible for benefits that include a 6% interest rate cap and protection from late fees. These benefits can affect your monthly mortgage payments during your service period.
4. ARM Adjustments:
- Adjustable-Rate Mortgages (ARMs): These mortgages feature an initial fixed rate that adjusts after a certain period, potentially leading to higher payments. Understanding the adjustment terms and caps associated with your ARM is crucial.
5 Other Potential Factors:
- Late Fees: Missing a mortgage payment can result in late fees, increasing your overall balance.
- Changes in Servicing Fees: Your lender might add new servicing fees to your monthly bill, impacting your mortgage balance.
Taking Control of Your Mortgage Payments
1. Stay Informed:
- Communicate with your lender: Regularly discuss potential rate changes and other factors that could affect your mortgage payments.
- Review your escrow statements: Monitor your escrow account activity to anticipate potential shortages or overages.
2. Prepare for Increases:
- Budgeting: Factor in potential payment increases when creating your budget to avoid financial strain.
- Increase Down Payment: Consider making a larger down payment to lower your overall loan amount and reduce the impact of future increases.
3. Explore Refinancing Options:
- Lower Interest Rates: If interest rates have fallen since you obtained your mortgage, refinancing could lead to a lower monthly payment.
- Remove PMI: Refinancing to a conventional loan might allow you to eliminate PMI, reducing your monthly expenses.
4. Seek Professional Guidance:
- Consult a financial advisor: They can help you analyze your financial situation and develop strategies for managing your mortgage payments.
- Talk to a mortgage professional: They can provide personalized advice on refinancing options and other ways to optimize your mortgage.
5. Remember:
- Be proactive: Don’t wait for surprises. Stay informed about potential changes and take steps to manage your mortgage effectively.
- Explore your options: Consider refinancing or other strategies to lower your monthly payments and achieve long-term financial goals.
By understanding the reasons behind your rising mortgage balance and taking proactive measures, you can navigate these financial changes confidently and maintain control over your homeownership journey.
How can I stop my mortgage payments from increasing?
Itâs possible, in a few ways, to stop your monthly mortgage payments from increasing. These include looking around for a better homeowners insurance policy, refinancing your loan to a lower interest rate (if rates have dropped since you obtained your original mortgage), and, if at all possible, doing away with mortgage insurance. As previously mentioned, you can also prevent your payments from going up by making a lump sum payment for any escrow shortage.
Why Would My Mortgage Payment Go Up?
As just noted, a mortgage payment can change for multiple reasons. Letâs explore some of them momentarily.
Among the most frequent reasons for an increase in your mortgage payment are modifications to the cost of your homeowners insurance or property taxes. These funds are traditionally held in an escrow account connected with your mortgage payment.
Escrow accounts are useful because they let you pay your homeowners insurance and property taxes in 12 equal monthly installments rather than all at once each year. When your property taxes and/or homeowners insurance increase, so will the amount thatâs needed in escrow.
Local taxing authorities assess property values for tax purposes at different times. You might have an overage or shortage in your escrow account because your taxes and insurance costs won’t always change while your escrow is being analyzed.
You’ll get a check for the excess amount you paid if your homeowners insurance or property taxes decrease. Dealing with a shortage is slightly different. First of all, since your mortgage lender will pay the outstanding balance in your place, you don’t need to worry about running afoul of your insurance provider or taxing authorities. The downside with this scenario, though, is that your monthly mortgage payment will increase.
If youâre facing an escrow shortage, you have a couple of options for dealing with it:
- You have the option to settle the shortfall in full at once.
- By paying a larger monthly mortgage payment, you can spread out the shortfall over the course of the upcoming year.
A large shortage can come about if you change your homeowners insurance. When you cancel your policy, youâll receive a prorated refund check for the remaining time on the policy. You must send this check to your mortgage servicer to be applied to your escrow account in order to prevent a shortage.
Itâs important to stay on top of your escrow payments to avoid surprise changes in your mortgage. Observe the direction in which your escrow account has been trending in order to plan ahead and adjust as needed.
Although it is always ideal to make at least a 20% down payment on a house purchase, there are a number of low down payment options available. But they often come with a caveat. For example, if you were to exchange a down payment option for a conventional loan, which has a lower interest rate than a conventional loan, you would need to pay for private mortgage insurance (PMI).
Your monthly mortgage payment will increase thanks to PMI, but once you reach 2020% equity in the home, you won’t have to pay it as much. As a result, youâll have a lower monthly payment.
Mortgage insurance requirements vary by loan type, however. For instance, a USDA loan carries a “guarantee fee” that includes an annual fee that is divided into monthly payments and an upfront fee that is included in your monthly mortgage payment. However, a USDA loan does not technically require mortgage insurance. These fees are 1% and 0. 35% percent of the loan balance, respectively.
Conversely, FHA and conventional loans have different requirements, which we’ll examine in a moment.
If your FHA loan closed on June203,2013, or later, you can only remove the mortgage insurance premium (MIP) if you have paid the mortgage insurance premium for at least 2011 years and made a down payment of at least 2010 percent. If your down payment is lower than 10%, youâll make MIP payments for the life of the loan.
The MIP can be eliminated when you reach 20222% equity in your home, regardless of the amount of the down payment or the number of years that have passed since you began making mortgage payments, if your loan closed before June 20, 2013. If you are no longer required to make MIP payments, your monthly mortgage payment will decrease regardless of whether your MIP expires after 2011 years or at 2022 percent equity.
Consider refinancing into a conventional loan if you would like to stop paying mortgage insurance premiums but they cannot be eliminated.
Removing Conventional Loan PMI
PMI, which is distinct from traditional loans, can be completely avoided by putting down 20% or more of the total amount owed. Or, as already mentioned, it can be canceled later once youâve achieved 20% equity in your home.
It is advisable to inquire with your lender about the specific circumstances surrounding the removal of PMI from your monthly mortgage payment, as there are some exceptions to this rule.
Service members are covered by the Servicemembers Civil Relief Act (SCRA) from the time they begin an active duty cycle until a year after the assignment ends. During this period, those on active duty are entitled to certain SCRA benefits, including:
- No requirement to pay late fees
- Your lender not being able to foreclose on you
- An interest rate that canât exceed 6% during active-duty service
As previously stated, if you have an adjustable-rate mortgage (ARM), this may be the cause of your mortgage’s ongoing increases, or it may be one of several causes. Unlike fixed-rate mortgages, all adjustable rate mortgages (ARMs) have an initial rate that is set at the outset of the loan and that changes after a predetermined number of years.
For example, if you have a 7-year ARM, your payment will remain fixed at the original rate for 7 years. This ARM payment option would be marketed as a 7/6 ARM. The second figure is the number of times the rate is adjusted annually at the conclusion of the fixed period. In this case, the rate adjusts every 6 months.
When it comes time for your ARM to adjust, the investor in your mortgage determines whether it will go up or down based on a few indexes. Your interest rate on a conventional loan from Freddie Mac or Fannie Mae is determined by taking the 6-month Secured Overnight Financing Rate into account. (SOFR)
Your interest rate adjustment for a VA or FHA loan is determined by using the 1-year Constant Maturity Treasury (CMT). This index number is then added to a margin to get your rate.
Additionally, some caps are associated with your loan. For instance, you might see one labeled as 2/1/5, which means:
- 2: Thereâs a 2% increase/decrease cap on the initial adjustment.
- 1: After that, the rate won%C3%A2%C2%80%C2%99t increased or decreased more than 1% for each adjustment.
- 5: The interest rate earned is C3%A2%C2%80%C2%99t, meaning it will fluctuate more than 5% over the course of the loan.
See how your monthly payment is broken down and how making additional payments can reduce your interest costs by using our amortization calculator.
Why Your Fixed Rate Mortgage Payment May Skyrocket: Escrow Shortages Explained
FAQ
Why is my mortgage balance increase?
Why is my home loan balance increasing?
Why did my mortgage balance increase this month?
Why did my mortgage amount go up?
Why are my monthly mortgage payments increasing?
If you have a fixed-rate mortgage, you may still see an increase in your monthly mortgage payments due to several common factors. Note that some of the following factors are often coupled with your mortgage payments or taken out of an escrow account on a monthly basis.
Why does my mortgage payment fluctuate?
In fact, your monthly mortgage payment can fluctuate several times over the term of the loan. If your monthly payment has gone up or down, the first order of business is to figure out why. Here are the top reasons mortgage payments change: Property taxes going up or down can cause a mortgage payment change.
Why do mortgage payments go up and down?
Although it may be jarring at first glance, this is more common than you may think. Mortgage payments can go up and down throughout the life of your loan for a few reasons, particularly if there are adjustments to factors coupled with your monthly payment. Let’s dive into them below. Can my monthly mortgage payment go up?
What causes a mortgage payment to change?
As just noted, a mortgage payment can change for multiple reasons. Let’s explore some of them momentarily. Changes in the price of your property taxes or homeowners insurance are among the most common causes of a mortgage payment increase. These funds are traditionally held in an escrow account connected with your mortgage payment.