Why Did My Mortgage Go Up?

Did you know even fixed-rate mortgages can change rates? As you settle into homeownership and manage your monthly budget, a sudden jump in mortgage payments can be confusing and frustrating. But there are a number of factors that can cause a mortgage to increase beyond changes to your interest rate. If you’re wondering, “Why did my mortgage go up?” the guide below can help you understand the reasons and decide what steps you can take.

Factors That May Result in Higher Mortgage Payments

There are several factors that can result in higher mortgage payments, such as changes in property tax, insurance, or fees. Here's what you can check:

Property Tax 

In most cases, property taxes and homeowners insurance are paid through an escrow account. Property taxes are based on the assessed value your property. If the assessed value increases, taxes can also rise proportionately. 

However, you might not notice right away. That's because when you pay into an escrow account, the cost of your property taxes is spread out in equal payments over a year. The lender will cover the difference if your taxes increase until your next escrow review. 

Then, your monthly payment will increase to cover the shortfall plus the tax increase. Usually mortgage servicers conduct an escrow analysis once a year, which may not be at the same time as a property assessment. 

If you lose property tax exemptions, it can also drive your mortgage payment. Some states and municipalities require you to reapply for your annual exemptions, and not all homeowners qualify. To see about exemption possibilities, you'll have to contact your local tax office. 

ARM Interest Rate Adjustments 

If you have an adjustable-rate mortgage (ARM), your taxes could increase from time to time based on the stated adjustment period. Usually, ARMs have a set period of one to seven years, after which they adjust every six months to one year. 

For example, an ARM stated as 5/1 would have a fixed rate for five years and then an adjustment period once yearly. When the interest rate adjusts, it is adjusted as stated in the mortgage contract with reference to a standard rate like the Fed (Overnight Federal Funds Rate). 

For example, your interest rate might be Fed +2%. If your mortgage was readjusted on June 14, 2024, it would be 7.33% (5.33% + 2%). 

Escrow Changes

If you decide to switch from paying your property taxes and insurance into an escrow account to paying it directly, or vice versa, you can see a change in your mortgage payments. For example, if you choose to switch from paying directly for property tax and homeowners insurance as a lump sum, you can add an escrow account during your mortgage term. In that case, your monthly mortgage payments will go up because property tax and insurance are rolled into the monthly mortgage payments. In addition, there may be additional fees to set up and manage the escrow account but shouldn’t exceed one-sixth of your annual escrow payments.

Even if you already were using an escrow account, these payments can go up because of increasing insurance costs or taxes. If you opt to add an escrow account later in your mortgage term. Additionally, if you're not using an escrow account, you could also see extra costs if you miss a tax or insurance payment or in case of foreclosure. 

Homeowners Insurance

Homeowners' insurance costs may increase periodically due to changes in the home risks, coverages, or insurance rates. If you pay your homeowners insurance as part of your total mortgage payment, an increase in homeowners insurance can result in higher mortgage payments.

Service Member Benefits

If you are an active duty service member, you could receive certain protections or discounts under the Servicemembers Civil Relief Act (SCRA), which provides certain protections to service members on active duty.

Under these rules, if you're an active duty service member or for one year after an assignment, you don't have to pay late fees. In addition, your interest rate is capped at 6%, and the lender cannot foreclose on your home. If you've been home for over a year, these benefits expire, and mortgage payments may increase due to increased interest rates or other fees.

Charged New Fees  

Sometimes, mortgage servicers also charge additional fees. If your lender added a new servicing fee, that can increase your monthly bill. You can check your monthly mortgage statement for any unfamiliar fees. Sometimes, you can talk to your lender to remove or renegotiate fees. 

Mortgage Servicer Made a Mistake

While rare, it's possible that your mortgage servicer could have made a mistake. If there are accidental fees, a new interest rate, or other charges you don't recognize, you can contact your mortgage servicer to understand the situation. If you identify something that's incorrect, you can explain it to them and see if it was a mistake or how to resolve it. 

Can Your Mortgage Payment Go Down?

Yes, your mortgage payment could go down for some of the reasons above. In addition, when you reach 20% equity in the home, the lender will remove private mortgage insurance (PMI), which can result in a modest drop in mortgage prices. 

If you had an FHA loan, the mortgage insurance premium (MIP) can be removed if you made at least a 10% down payment and paid the MIP for at least 11 years.

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You can compare Benzinga's top lenders to find the best mortgage options for your family here. 

Final Tips on Mortgage Increases

While a small mortgage increase can be frustrating, it's usually nothing to worry about. To be sure, speak with your mortgage servicer or lender to understand the new terms and what changes affected your mortgage rate. While many changes, like taxes and insurance increases, are normal over the course of a mortgage, sometimes servicers make a mistake. Double-check anything you're unsure about, and remember that you can always consider refinancing if your mortgage payments become too high. 

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