Why Is My Mortgage Payment Going Up?!

It's not uncommon for homeowners to receive a mailing from their mortgage company with a lot of numbers, one of which is their new, increased, mortgage payment. This can be confusing and frustrating, often leaving homeowners to wonder, "how can they just raise my payment when I have a fixed mortgage rate?"

The issue is most often escrow payments. As part of your payment each month you pay down some of the principal on the loan, some money in interest, and money to go into your escrow account. Using the funds in your escrow account your mortgage servicer pays for anything you have chosen to "escrow", such as homeowners insurance, other insurance for the property (flood, wind and hail, earthquake, etc.), and property taxes.

Ideally the escrow portion of your monthly mortgage payment should equal 1/12th of the total of all the bills that will be paid out of the escrow account. Unfortunately this doesn't always happen. At least once a year the mortgage servicer will take a look at the account and see whether it is on track, and contains the amount needed to pay the upcoming obligations. If there is too much in the account (over a certain amount, sometimes $50) they will send you a check for the overage. If there is too little they will generally raise your monthly payment, and/or ask you to pay a certain amount to make up the difference.

A shortage could be due to an increase in your insurance, property taxes, or other bills, or the result of a miscalculation somewhere along the way. Be sure to check that all bills paid out of your escrow account were for the correct amount  as an overpayment could cause a shortage on your escrow account.