Can My Mortgage Payment Go Up?
Yes, your mortgage payment can go up for various reasons, including changes in property taxes, adjustments to your interest rate, and fluctuations in homeowner’s insurance premiums. In this section, we’ll explore how property tax changes can impact your mortgage payment.
Property Tax Changes
Property taxes are an essential component of your mortgage payment, and changes in these taxes can directly affect your monthly payment. Local governments periodically reassess property values, which can lead to higher or lower property taxes.
Reassessment
Property tax reassessment occurs every few years, depending on your jurisdiction. For example, in California, properties are reassessed every time they change ownership or undergo significant construction. According to the National Taxpayers Union Foundation, property taxes increased by an average of 4% per year between 2000 and 2010. This growth rate means that if your home’s value increased during the reassessment, your property taxes—and consequently, your mortgage payment—could go up.
Exemptions
Some homeowners qualify for property tax exemptions, which can lower their overall tax bill. These exemptions can be based on factors such as age, disability, or veteran status. However, if your eligibility for these exemptions changes or expires, your property taxes may increase, leading to a higher mortgage payment.
Appealing Property Tax Assessments
If you believe your property has been over-assessed, you can appeal the assessment to potentially lower your property taxes. This process varies by jurisdiction, but it generally involves submitting an appeal with supporting documentation, such as comparable sales data or an independent appraisal. A successful appeal can help reduce your property taxes and, in turn, lower your mortgage payment.
Tax Rate Changes
Another factor that can influence your mortgage payment is a change in the local property tax rate. Local governments may adjust tax rates to meet budgetary needs, and these changes can impact your property taxes. For example, in 2020, New Jersey homeowners paid an average property tax rate of 2.13%, making it the state with the highest property tax rate in the United States. If your local tax rate increases, your property taxes and mortgage payment may also rise.
What’s the Impact of Homeowners Insurance on My Mortgage Payment?
Homeowners insurance is another factor that can influence your mortgage payment. Changes in your insurance premiums can result in adjustments to your monthly payment, especially if your insurance is paid through an escrow account.
Adding an Escrow Account
When you have an escrow account, a portion of your mortgage payment is set aside to cover property taxes and homeowners insurance premiums. Lenders often require escrow accounts for borrowers with less than a 20% down payment. By adding an escrow account to your mortgage, you can ensure that these expenses are paid on time and avoid potential penalties or lapses in coverage.
Why Did My Escrow Payment Go Up?
Your escrow payment can increase if your property taxes or homeowners insurance premiums rise. According to the National Association of Insurance Commissioners, the average annual homeowners insurance premium in the United States was $1,249 in 2018. However, this amount can vary widely based on factors like location, coverage, and the age and condition of your home. If your insurance provider adjusts your premium, your lender will adjust your escrow payment accordingly, which can lead to a higher mortgage payment.
Navigating Interest Rate Adjustments
Interest rate adjustments are another reason why your mortgage payment might go up, particularly if you have an adjustable-rate mortgage (ARM).
Adjustable-Rate Mortgages (ARMs) and Rate Adjustments
ARMs typically have a lower initial interest rate compared to fixed-rate mortgages, but the interest rate can change periodically based on market conditions. According to Freddie Mac, the average initial interest rate for a 5/1 ARM was 2.99% in September 2021. However, after the initial fixed-rate period, the interest rate can increase or decrease based on a predetermined margin and index.
Understanding Adjustment Caps and Periods
ARMs typically have adjustment caps that limit how much the interest rate can change during a specific period or over the life of the loan. For example, a 5/1 ARM might have a 2% annual cap and a 5% lifetime cap, meaning the interest rate can’t increase by more than 2% per year or 5% over the life of the loan. Understanding these caps can help you anticipate potential changes in your mortgage payment due to interest rate adjustments.
Interest Rate Adjustments: How Do They Affect My Mortgage Payment?
Interest rate adjustments can have a significant impact on your mortgage payment, particularly if you have an adjustable-rate mortgage (ARM). However, there are other factors, such as refinancing, that can also influence your interest rate and monthly payment.
Mortgage Refinance
Refinancing your mortgage involves replacing your current mortgage with a new one, often with better terms or a lower interest rate. According to the Mortgage Bankers Association, refinance activity accounted for 50.1% of total mortgage applications in the week ending September 17, 2021. By refinancing, you may be able to lower your interest rate and decrease your monthly payment. However, refinancing can also come with costs, such as closing costs and appraisal fees, which should be taken into consideration when determining if it’s the right option for you.
Servicemember Benefits
Active-duty servicemembers and veterans may be eligible for mortgage benefits through the VA Home Loan program. These loans often offer lower interest rates and more favorable terms than traditional mortgages. If you’re eligible for a VA loan, refinancing into a VA loan could potentially lower your interest rate and monthly payment.
New Fees Were Charged
Sometimes, new fees can be added to your mortgage payment, such as late payment fees or lender-placed insurance premiums. If you notice an increase in your mortgage payment, it’s crucial to review your mortgage statement for any new or unexpected charges and address them with your lender.
Can My Mortgage Payment Go Down?
Yes, your mortgage payment can decrease for various reasons, including mortgage insurance removal or adjustments to your property tax assessment.
Mortgage Insurance Removal
If you have mortgage insurance, such as private mortgage insurance (PMI) or FHA mortgage insurance premium (MIP), removing it can lower your mortgage payment.
Removing Conventional PMI
For conventional loans, you can request to remove PMI once you have at least 20% equity in your home purchasing. Lenders are also required to automatically remove PMI once your loan-to-value (LTV) ratio reaches 78%.
Removing FHA MIP
For FHA loans, MIP removal can be more challenging. If your loan originated after June 3, 2013, MIP is required for the life of the loan if your down payment was less than 10%. However, if your down payment was 10% or more, you can remove MIP after 11 years.
Preparing for Changes to Your Monthly Mortgage Payment
Understanding the factors that can cause your mortgage payment to go up or down is crucial for effectively managing your finances. Stay informed about interest rate adjustments, refinancing options, and mortgage insurance removal to anticipate and prepare for potential changes in your mortgage payment. By doing so, you can make informed decisions and maintain control over your financial future.
