Why is My Fixed Rate Mortgage Getting More Expensive?

If you have a fixed-rate mortgage (like a 30-year fixed), your interest rate and principal payment remain constant for the life of the loan. Why are your payments going up then? Most likely, your property tax, homeowners insurance, and/or HOA dues went up. Here are the most common causes:

1. Escrow Adjustments

Your mortgage most likely includes an escrow account to pay for property taxes and homeowners insurance on your behalf. While your loan’s interest rate remains the same, your lender estimates these costs and adjusts them as needed.

• Property Taxes Increase: Local governments reassess property values periodically, and if your home’s assessed value rises or tax rates increase, your property tax bill will go up. This results in higher escrow payments.

• Insurance Premiums Increase: Homeowners insurance costs inevitably go up. If your insurance premium increases, your lender will adjust your escrow account accordingly.

What to do:

• Review Escrow Statements: Your lender will provide an annual escrow analysis showing changes in taxes or insurance. This will tell you if your account has a shortage or overage.

• Shop for Insurance: Compare rates from other insurers to ensure you’re getting the best deal.

• Appeal Property Taxes: If your property’s assessed value is too high, contact your local tax office to challenge it.

2. Escrow Shortages

If your escrow account doesn’t have enough funds to cover increases in taxes or insurance, your lender may increase your monthly payment to make up for the shortfall.

• Shortage Payments: Lenders often spread the shortage over 12 months, adding it to your regular payment.

• Recalculated Payments: Once the shortage is resolved, your monthly escrow payments may still be higher if taxes or insurance costs have permanently increased.

How to Address It:

• Make a Lump-Sum Payment: Pay the shortage in full to avoid a monthly increase.

• Budget for Higher Escrow Payments: Plan for ongoing adjustments if the higher costs persist.

4. Adding Private Mortgage Insurance (PMI)

If you originally avoided private mortgage insurance (PMI) by using a second loan or another program, but your loan circumstances change, PMI may be added. This could happen if:

• Your loan balance exceeds 80% of the home’s value due to a market downturn.

• You refinance into a new loan that requires PMI.

How to Address It:

• Monitor Your Equity: If your equity is above 20%, contact your lender to have PMI removed.

• Consider a Reappraisal: If your home’s value has risen, a new appraisal might help eliminate PMI.

5. HOA Fees Collected by the Lender

If your homeowners association (HOA) fees are collected by your lender as part of your monthly payment, an increase in these fees will raise your payment.

How to Address It:

• Attend HOA Meetings: Stay informed about decisions affecting fees.

• Question Large Increases: Ask for detailed explanations for fee hikes.

6. Supplemental Payments or Assessments

Local governments or municipalities may impose special assessments for infrastructure projects or other improvements in your area. These assessments are often added to your property tax bill, increasing your escrow payments.

How to Address It:

• Check Your Property Tax Bill: Understand the duration and purpose of any assessments.

• Budget Accordingly: Adjust your finances to account for temporary increases.

7. Miscalculations or Errors

Errors in calculating escrow payments or tax and insurance costs can lead to unexpected increases.

How to Address It:

• Request a Review: Contact your lender to verify the accuracy of the adjustment.

• Monitor Bills: Ensure property tax and insurance statements match what your lender reports.

8. Changes to Mortgage Insurance Premiums (MIP)

For loans backed by government programs like the FHA, annual mortgage insurance premiums may change based on government regulations, loan terms, or equity.

How to Address It:

• Refinance Out of FHA Loan: If you have enough equity, refinancing to a conventional loan can eliminate ongoing mortgage insurance premiums.

Conclusion

A fixed-rate mortgage ensures your interest rate and principal payments remain constant, but your total monthly payment can still increase due to adjustments in taxes, insurance, escrow shortages, or other factors. Regularly reviewing your loan statements and escrow analysis can help you understand and address these changes.

If the increases feel unmanageable, contact your lender to explore solutions, such as spreading out payments or refinancing your loan.