Why Did My Mortgage Go Up?

Your mortgage is a big expense — probably the biggest expense in your budget. So, if your monthly mortgage payment suddenly goes up, it can really mess with your savings.

Mortgage payments can go up for several reasons. Having an adjustable-rate mortgage is the most common reason — when interest rates go up (like they have in recent years), your mortgage goes up too.

But things like your property taxes, homeowners insurance, and whether you’ve missed a payment can also affect what you owe.

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5 Things That Can Make Your Mortgage Go Up

If your mortgage bill is suddenly more than you anticipated, it's likely due to one of these five reasons.

1. You have an adjustable-rate mortgage

An adjustable-rate mortgage (ARM) is a common reason for your mortgage changing — sometimes by a lot! 

With ARMs, your rate at the start of the loan is usually lower than the rate on a fixed-rate mortgage. But once that period is over, your interest rate changes — which means your mortgage payment also changes.

For example, your ARM could have a five-year introductory rate of 4%, which then adjusts annually to match a market benchmark rate plus a premium of 2%. 

If the benchmark is 3.5% after five years, then your mortgage rate would increase to 5.5%.

ARMs usually have a cap on your interest rate. For example, your loan might cap the interest rate adjustment to 2% in a year, and 10% over the life of the loan. 

Rates can decline, too. If the benchmark fell to 1%, then your mortgage rate would fall, too. 

Also, if you were an active service member using the Servicemembers Civil Relief Act (SCRA) benefit, your interest rate was capped at 6%, but that expires one year after active service ends.

2. Your property taxes or homeowners insurance changed

Many mortgage lenders collect a monthly escrow payment rolled into your mortgage. This payment includes your property taxes and homeowners insurance. 

One reason lenders do this is to protect themselves if you default on your mortgage. In that case, the bank might foreclose on your home — and it wouldn’t want to be left with tax liens or an expired homeowners insurance policy.

If your property taxes or insurance changes and your lender collects these in escrow, then your monthly payment amount will change too.

Property taxes can be affected in two ways: 

• Rate change: Property taxes are used to fund schools and community projects. If there’s a budget change in your city, it could increase the property tax rate as well. 
• Reassessment of the property value: Some states do regular property value assessments. If the tax assessment value changes, so will your taxes. 

In both cases, your escrow payments would adjust accordingly. 

Similarly, your homeowners insurance policy may increase over time. When it does, the monthly escrow amount should adjust as well. 

3. Your private mortgage insurance ended

If you had a small down payment (less than 20%), your lender may have required primary mortgage insurance (PMI). 

As you pay down your loan principal, you’ll cross a threshold where PMI is no longer required. If you’ve hit this, your monthly payments should go down.

4. You were late on a payment

If you miss a mortgage payment, you’ll probably be charged a late fee. 

Late fees can be anywhere from 3% to 6% of your monthly payment. So, if you regularly pay $1,200 per month for your mortgage, that could be an extra $72 added to your bill.

5. You refinanced your mortgage

Refinancing is when you get a new loan to replace your old loan. 

People usually do this when they want to change their monthly payments, change the term length, or get a better interest rate.

You might also refinance if you want to take money out of your home’s equity. In this case, you take out a larger loan and keep the difference in cash.

No matter the reason, a refinance is still a brand-new mortgage, which means your rate and/or monthly payments probably changed.

READ MORE: How Much House Can I Afford?

How to Budget for a Mortgage Payment Change

If your monthly mortgage payment has gone up by a lot, you may be worried about how you’re going to cover the new amount.

First of all, see if you can recalculate your monthly budget. Are there any unnecessary expenses you can cut to make up the difference?

If you’ve cut absolutely everything and still can’t afford your new mortgage payments, you have a few options. Talk to your lender and see if any of these options are possible:

• Refinance to a lower interest rate: Refinancing is basically a brand-new mortgage. The bank pays off your current mortgage and you get a new one with a lower interest rate. Just keep in mind that you’ll have to pay fees on a refinance.
• Refinance to a longer term: You can also refinance to a longer term, like changing a 15-year mortgage to a 30-year mortgage. This will reduce your monthly payments, but know that you’ll pay more in interest overall. 
• Ask about loan modification: If you’re under financial hardship, your lender may be able to modify your mortgage without refinancing it. This is typically only an option if you’re not eligible for refinancing.
• Check your homeowners insurance: If your policy premium went up, check if you can get any discounts with your insurance provider (such as for being a loyal customer or making improvements to your home). Or, you could shop around for a new insurance provider.

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FAQs

How do I stop my rate from increasing?

Some changes are mostly out of your control, like changes to your property taxes and homeowners insurance. 

But if you have an adjustable-rate mortgage, that is in your control. 

You could refinance your mortgage to a fixed-rate loan. While your new fixed rate might be higher than your current adjustable rate, it will be fixed from then on. Which means if market rates go up, your rate won’t. (However, the opposite is also true: if rates go down, yours won’t.)

Just remember that refinancing is a new loan, which means you’ll have to pay fees like closing costs again.

Can your mortgage go up on a fixed-rate mortgage?

Even if you have a fixed-rate mortgage, your monthly bill could still change. This could be due to your property taxes or homeowners insurance changed or if you’ve missed a payment and owe a late fee.

TL;DR

Your mortgage bill is more than just the amount you owe on your home. It also includes interest, property taxes and homeowners insurance (if you have an escrow account), and possibly private mortgage insurance if your down payment was less than 20%.

All of these factors affect how much you have to pay on your mortgage each month. So if your bill has gone up (or down), it’s likely that one of these factors changed.

For more money management tips, check out these episodes of the Erika Taught Me Podcast:

• How To Budget for Beginners
• The Psychology of Money
• How to Become Better With Money