Your mortgage is likely one of the biggest financial commitments you’ll ever make. While many people assume their monthly mortgage payments will remain the same throughout the loan term, several factors can cause these payments to increase. In this blog, we'll explore the various reasons why mortgage payments might rise, so you can be prepared and take action if necessary.
Rising Property Taxes
Property taxes are one of the most common reasons for an increase in mortgage payments. Most homeowners have an escrow account, which includes taxes and insurance in their monthly payment. If your property’s value increases, so will your property taxes, leading to a higher mortgage payment.
How to Handle It:
Stay informed about your local property tax rates and assess your property value regularly. You can also appeal your tax assessment if you believe your home has been overvalued, potentially lowering your payments.
Homeowners Insurance Premiums Increase:
Like property taxes, homeowners insurance is often paid through an escrow account. If your insurance premiums increase due to factors like natural disasters, increased coverage needs, or inflation, your mortgage payment will rise as well.
How to Handle It:
Regularly shop around for better insurance rates. Compare different providers and adjust coverage limits if necessary to ensure you're not overpaying. It might be beneficial to bundle your insurance policies for additional savings.
Private Mortgage Insurance (PMI):
If you put less than 20% down on your home, you likely have private mortgage insurance (PMI), which adds to your monthly payment. While PMI doesn't typically increase, your mortgage payment could decrease if you reach 20% equity and remove PMI.
How to Handle It:
Monitor your home equity closely. Once you've built up 20% equity in your home, request to have PMI removed, which will lower your payment. Stay on top of any requirements from your lender to ensure this happens promptly.
Escrow Shortages:
Your mortgage lender collects funds for property taxes and insurance through an escrow account. If there is an unexpected increase in taxes or insurance, and not enough funds are in the account, your lender may raise your monthly payment to cover the shortfall.
How to Handle It:
Keep an eye on your escrow account statements to make sure everything is in order. If you receive notice of an escrow shortage, contact your lender to explore payment options, including spreading out the shortfall over a few months.
HOA Fees and Special Assessments:
If you live in a community with a homeowners association (HOA), rising HOA fees or special assessments for community repairs can indirectly affect your monthly housing costs. While this doesn’t increase your mortgage payment directly, it impacts your overall monthly housing budget.
How to Handle It:
Be active in your HOA meetings and stay informed about upcoming projects that could lead to special assessments. Additionally, plan for rising fees by adjusting your budget accordingly.
Late Fees or Penalties
If you miss a mortgage payment or are consistently late, your lender may charge penalties or late fees. These fees will be added to your outstanding balance, potentially increasing your monthly payment.
How to Handle It:
Always pay your mortgage on time to avoid penalties. Set up automatic payments or reminders to ensure you're never late, and if you foresee financial trouble, contact your lender early to discuss potential options.
Mortgage payments can increase for various reasons—some of which are within your control, while others are tied to market conditions or policy changes. By staying informed about these potential factors and monitoring your financial situation closely, you can take proactive steps to keep your mortgage payments as manageable as possible. Whether through refinancing, appealing property taxes, or shopping for better insurance rates, there are strategies you can use to help minimize the impact of rising costs. If you're unsure about the best approach for your situation, it's always a good idea to consult with a mortgage professional who can guide you through your options.
