Why did my mortgage go up?

It may be surprising to find that your monthly mortgage payment — especially if you have a fixed-rate mortgage — has gone up. Your mortgage payment is divided into four parts: principal, insurance, taxes, and interest.

If any one of these factors increases, your mortgage payment also increases:

• Opening an escrow account: Before taking out a mortgage, you have the option of adding an escrow account to make your homeowners insurance and property tax payouts. You can also choose to make these payments yourself for a lower monthly mortgage payment. However, you may have to pay a large sum towards insurance and taxes when they are due. This is why many prefer opening escrow accounts. Some lenders also require you to open one to get your mortgage approval.

• Property tax: Even if your monthly loan (principal + interest) payment may not change, the taxes on your property may cause changes in how much you pay for that month. You pay property taxes into an escrow account which are spread out equally through the year. When there’s a tax increase, your lender will cover the shortage until your next escrow analysis — usually done once a year and not necessarily when your property tax increases. After that, your monthly payment will increase going forward. 

Property taxes may change because of your property reassessment. This may occur once a year, once in two years, or only when the house changes owners.

• Property tax exemption: Some states require that you reapply every year for your property tax exemption. So, if you don’t have an exemption, it may cause your property tax to rise. Sometimes, you may not be eligible for the tax exemption the previous owner of your property was. This may be confusing. Contact your local tax office for more information on exemptions.
• Homeowners’ insurance: Your mortgage payment may increase if you change your homeowners’ insurance policy. If your current homeowners’ insurance policy has expired or you need a new one, your lender may help you find one. This may be more expensive than if you had found one for yourself. Your mortgage payment can thus increase. 
• Interest rate changes: If you have opted for an adjustable-rate mortgage, your interest rate changes after some time (either five, seven, or ten years). The rate begins to vary every six to twelve months depending on the financial markets.
• Refinance: In many cases, homeowners refinance their loans to reduce their monthly mortgage payments. However, If you choose to refinance from a longer (30-year mortgage) to a shorter (15-year mortgage), you pay lower interest rates, but your principal amount goes up. So, you pay a higher monthly mortgage than before.