One of the most common questions I hear is:
“I have a fixed-rate mortgage, so why did my payment go up?”
The answer is often escrow.
Your monthly mortgage payment may include your principal, interest, property taxes, and homeowners insurance. With a fixed-rate mortgage, the principal and interest portion generally stays the same. However, your property taxes and homeowners insurance can change.
What is an escrow shortage?
Your mortgage company collects money each month to pay your property taxes and homeowners insurance.
If those bills end up being higher than expected, there may not be enough money in your escrow account. This creates an escrow shortage.
When your mortgage company performs its annual escrow analysis, your payment may increase for two reasons:
- Your taxes or insurance now cost more.
- You may need to repay the shortage from the previous year.
That’s why a payment can sometimes increase more than you expected.
The important thing to remember: A higher mortgage payment doesn’t necessarily mean your interest rate changed.