Recent changes in mortgage payments have affected a lot of homeowners, and this article discusses a number of potential causes.
To learn more, you’ll need to have your lender’s mortgage statement on hand, which should explain why the payment has increased. In this article, I’ll go over some of the typical reasons why.
Understanding the changes and their causes would be facilitated by being aware of what to look for and the appropriate questions to pose to your lender. Taking action sooner rather than later is essential for a speedy resolution!
Reviewing Your Mortgage Statement
Legally, the lending institution must deliver a standard mortgage statement to mortgage holders. Every billing cycle, statements are mailed to you unless you have selected to receive electronic statements through the online portal of your mortgage provider.
I prefer to have the monthly statements physically mailed to me because it makes me check my payments and find out the most recent loan status. My home mortgage is one of my largest payments, like most people, so I want to make sure I am on top of it.
Every mortgage lender had their own format for statements prior to the 2008 financial crisis, and some information wasn’t disclosed to mortgage holders or was disclosed incomprehensibly.
However, as per the Dodd-Frank Act, lenders must adhere to a prescribed format and contain the following information:
Get a few free mortgage refinance quotes while rates are still historically low if the interest rate changes are significant.
Your Mortgage Escrow Changed
You will have an escrow account unless you specifically agreed to pay your own homeowner’s insurance and taxes when you obtained the mortgage loan.
Money is kept in an escrow account by the lender to cover taxes and insurance when those bills are due. Escrow payments are made each month along with the mortgage payment and are noted as such on the mortgage statement.
Property taxes have increased in most places due to the significant rise in home prices over the past year.
Similar to that, given the increased value of your home, home insurance rates would have increased. Before your home insurance needs to be renewed, shop around and get a few free quotes to see if you can reduce your premium.
Like I recently did, you would have most likely received your annual escrow statement or “true-up,” which would have reflected the higher property taxes and possibly higher home insurance.
Your mortgage payment will automatically increase if your insurance or property taxes rise because your escrow amount is determined by a forecast of your taxes and insurance costs for the upcoming 12 months.
Consider Mark, a homeowner in Austin, Texas, as an example. Over the past year, real estate costs in this area have significantly increased. Therefore, he shouldn’t be shocked when he receives his most recent mortgage escrow statement and notices a $200 monthly increase to his regular $2000 monthly mortgage payment.
Looking at his mortgage statement reveals that the $200 increase is due to taxes rising as a result of the neighborhood’s local home assessor’s office raising local property taxes.
The new escrow amount on the monthly mortgage statement, which reflects the tax increase, serves as the new mortgage payment amount until next year, when another review will take place.
Your Bank or Financial Institution has added new fees
There might be additional fees on the current mortgage statement that weren’t on the previous month’s statement. A typical fee that might be imposed is a late payment fee. Nancy’s mortgage payment was $1,100 last month, but this month it will be $1,210 because it was received late and the bank assessed a 10% late fee.
You can find the payment due date and the grace period at the top of the statement. Lenders impose a late fee if the payment is not received during that grace period. You can try calling the lender and requesting that the late payment penalty be waived if you have never been late with a payment before.
Some homeowners struggle to make their mortgage payments for a variety of reasons, so if your long-term financial situation suggests that you won’t be able to do so consistently and on time, let the lender know and inquire about your options. If the circumstance is temporary, such as when you’re looking for a new job after being fired, payments may occasionally be added to the loan’s remaining balance.
In some circumstances, refinancing is an option, but only if the account is in good standing and you have a positive relationship with the lender. Refinancing is not guaranteed, but your chances are better if you haven’t yet fallen behind on payments.
Interests Rates Were Changed on Adjustable-Rate Mortgages (ARM) by Your Lender
Before their mortgage balance changes, not all homeowners are aware that they have an adjustable-rate mortgage. Because they have a lower interest rate than other available mortgages, ARMs are typically the option that looks the best at the beginning of the loan.
However, after the fixed period has passed, the interest rate on these loans fluctuates in line with the market.
After 5 years with the loan, Alan’s mortgage payment increased this month. He has since learned that he has a 5/1 ARM, which means that the interest rate was initially fixed for the first 5 years before changing once a year.
If your rate hike makes it unaffordable, you may want to consider refinancing if your convertible ARM doesn’t qualify for conversion to a fixed rate loan.
Principal is Now Being Paid on Interest-Only or Pay-Option Loans
Although they are great for people who move frequently or are buying a home as a short-term investment, interest-only mortgages are sometimes marketed to first-time homebuyers who are unsure of what they are signing.
When this ARM-structured loan suddenly has a much higher payment, it will come as a rude surprise to homeowners who intend to stay in the home for a long time.
Using an interest-only loan for $100,000 at 5% interest over 10 years, Sidney bought a house for his family ten years and one month earlier. The monthly mortgage payment was a manageable $417. Due to the principal being due this month, the payment has almost doubled!
He is now considering refinancing for a higher interest rate and no equity in the house he has been making payments on for ten years because he was unaware that he could make additional monthly payments toward the loan’s principal.
A pay-option loan can be structured 3 ways:
It is best to think about refinancing before this happens or move to a more affordable housing option because the monthly payment increase on either an interest-only or pay-option loan can be astronomical when the loan starts collecting the full principal and interest payments monthly.
A Mistake Was Made by the Lender on Your Account
The fact that this month’s mortgage payment is higher than usual could be the result of a mistake made by the lender. Calling the lender to explain what transpired and inquire as to why the payment amount is higher this month is the best course of action in this circumstance
Get a corrected statement sent to you before making the payment, if you can, if you and the customer service agent determine that the payment amount is incorrect. With some lenders, delaying payment is simpler than trying to get your money back.
While on the phone, jot down the subject of the call, the person you spoke with, the date of the call, their employee ID number or mortgage officer number, and a reference number for the transaction so that you can confront the lender if necessary rather than incurring late fees or other charges that aren’t necessary.
Ask when the corrected statement will be sent to you and how it will be sent. If you don’t receive it within an acceptable timeframe, send a notice of error to the lender’s mailing address that is listed for errors or information requests. (Note that this address might be different from the address on your mortgage statement.)
Explain in the letter in a polite manner that there is a mistake on your account and include the details you took down in your notes when you called the company’s customer service department.
When Jessica received her mortgage statement for this month, she noticed that the amount was $200 higher than she had anticipated. She called the bank to inquire about the charges, and they determined that there had been a mistake. She patiently awaited a corrected statement, but never got one.
She attempted to contact the lender again but received no response; she then sent a notice of error, and the corrected statement was promptly mailed to her. Her account was once again marked as having been “paid on time” after paying the incorrect amount. The lesson was to always verify the payment amount each month and to inquire if it changes.
Mortgage payments on a monthly basis can fluctuate, especially if the loan has a variable interest rate. Before signing the loan documents, it’s important to understand the terms of the mortgage.
Don’t sign anything if you don’t understand the loan’s terms or the documents you’re about to sign. Get the details you require to make a decision by asking questions and gathering information.
A major life decision like purchasing a family home should only be made when you are emotionally and financially prepared for it.
Read the statement if your mortgage payment changes so that you are aware of what you are paying. Check the amount being paid to make sure it corresponds to the amount you agreed to pay if the payment is set up on autopay to be deducted from your bank account automatically. Ask questions if it doesn’t match until you comprehend why the payment is different.
Why did my escrow go up $300?
The land value may be the only factor considered in the property’s tax assessment. However, when the property is reassessed, it will take into account both the land value and the value of your home, raising your property taxes and, consequently, your escrow payment.
Is it normal for mortgage payments to increase?
Even if you have a fixed-rate mortgage, if the price of property taxes and insurance goes up, which they do because they are part of your monthly housing payment, then your mortgage payment will go up as well. And guess what, like everything else, these costs do tend to increase annually.
Why is my mortgage going up because of escrow?
Even though the loan has fixed-rate payments, any changes to the insurance premiums could result in an increase or decrease in the escrow balance. The insurance provider may annually adjust the rates, or the homeowner may have made improvements that increased the home’s replacement value.
Can a fixed mortgage rate increase?
A home loan option known as a fixed-rate mortgage has an agreed-upon interest rate for the duration of the loan. In essence, the mortgage’s interest rate won’t change throughout the loan’s term, and the borrower’s monthly interest and principal payments won’t change.