Quick Answer
When your property taxes increase or homeowner’s insurance goes up, your lender needs to collect more money in your escrow account to make those payments and consequently, your mortgage payment goes up.
Why Escrow-related Bills Can Change Over Time
You may be used to seeing the same payment amount on your mortgage bill each month. So it can come as a surprise when your statement shows a higher figure. Naturally, you start to question, "What happened? Why did my payment increase?" The answer may lie in your escrow account. When closing on a mortgage, lenders may establish an escrow account to hold part of the monthly payment for homeownership costs, such as real estate taxes, insurance premiums, and private mortgage insurance. This ensures timely payments to third parties, such as tax authorities and insurance companies.If you have a fixed-rate mortgage, the principal and interest portion of your monthly payment will not change. Payment changes are driven by changes in the escrow portion of your payment.
- Your monthly payments may go up even if you pay off the entire escrow shortage. This is driven by increases in property taxes.
- Property taxes may increase if your property is reassessed by your city or town, typically in January, if local tax rates are adjusted, usually in June, or due to special assessments, such as outstanding water and sewer bills. If you have any questions regarding your property taxes, contact your local tax office.
One of the challenges of owning a home is managing the various costs associated with it. Being prepared for unexpected expenses, such as increased escrow account payments, insurance, maintenance, and repairs, is essential for effective budgeting. Having a well-funded emergency fund can provide a safety net for these unforeseen costs until you can adjust your budget.
Navigate these changes with confidence. Understanding the dynamics of your escrow account is crucial for maintaining financial stability as a homeowner. While unexpected increases in your escrow payments can be frustrating, staying informed and proactive can help ease the burden. Consider reaching out to your lender for a detailed explanation of changes. Additionally, regularly reviewing your homeowner’s insurance policy and comparing rates can offer potential savings. By staying engaged with your financial obligations and seeking solutions, you can manage these fluctuations more effectively and maintain control over your budget.