Why Did My Fixed Rate Mortgage Bill Go Up?

August 7th, 2008 | 7:13 am | Posted in Mortgage | 16 Comments »

Going through some of the recent search terms that have brought people to PIAC, one inquiry stood out from the rest.

Sadly, I’m pretty sure that all of the folks that have stumbled upon this site looking for the answer have left empty handed wondering why they just wasted a few seconds of their life on a goofy site called something like “Pig in a Pan”.

While I’m sure that I’ve tiptoed around the perimeter of the answer in my PMI and Homeowner’s Insurance posts, I’m not certain that I’ve ever actually just flat out answered the question: Why did my fixed rate mortgage bill go up?

The answer lies in the escrow account set up, usually at closing, by the mortgage company you hold your mortgage with.

Money held in the escrow account is paid by the lender on your behalf. Things like property taxes, homeowners insurance, and private mortgage insurance (ugh!) are the main things paid out of the account.

So, while the principle and interest portion of your mortgage is “fixed”, the escrow portion is not.

Why not?

Well, it often varies from year-to-year because tax assessments and insurance premiums bounce around from year-to-year. Usually they go up, right? Taxes always seem to go up.

The cool part in the case your taxes go up, or whatever, is that the lender will typically cover any shortfalls in the escrow account. That is, until they can adjust your monthly payment — which they call an escrow analysis which is usually done annually, often the same month that you originally took on the mortgage.

As a real world example, when I first took on my mortgage in 2002, my “fixed” monthly payment was somewhere around $1100 per month.

But one month in to the mortgage, Allstate Insurance dropped my homeowners policy. Behind property taxes, the largest chunk of my original “escrow account” was based on Allstate’s homeowners insurance premium.

As I scurried to find replacement coverage I quickly learned that homeowner’s insurance premiums can vary widely. With Allstate, my yearly premium was around $450. On the Fair Plan, which I was forced to resort to, my premium was nearly $1000. Over double.

Now for the next 11 months, my mortgage payment remained at the original $1100. Unbeknownst to me, at the time, my mortgage company was covering the shortfall in my escrow account.

Then came the mortgage company’s annual escrow review on my account 12 months after I had moved in. My next mortgage bill was around $1350?!

At first, having grown accustomed to paying $1100 each month, I was flabbergasted. How could this be? How could they raise my monthly bill by over $250. This was a fixed mortgage! They couldn’t do that, could they?

To get my answer, all I had to do was read page 2 of my mortgage statement. It took me nearly a week to do this — I’m embarrassed to admit. The additional $250 was to cover the shortfall from the year before and also to ensure that they wouldn’t have to “spot” me the difference in the following year. Make sense?

That second year was rough. It wasn’t in my budget to have a $1350 mortgage payment.

That’s why it was a pleasant surprise when, 12 months later, my mortgage bill went down to $1200. This was because I was no longer covering a shortfall from the previous year.

Still, it was more than my original mortgage bill but less than what I had been paying. The quick up and then down experience in the first two years of my mortgage made it all click for me.

Hopefully this example helped it click for you too!

As a side note, for most folks, the insurance premium stays pretty constant, it’s the tax assessment that gets you…

For the past 4 years running, it’s been a series of tax hikes that have kept my bill going higher and higher…

16 Responses to “Why Did My Fixed Rate Mortgage Bill Go Up?”

  1. [...] the results weren’t in my favor like they have been in the past — not sure why I didn’t mention it back in [...]

  2. Explain this one 2 me. Fixed rate went from 3,500 to 5,000 thats right 1,500 dollars MORE!!!!!!! Needless to say we couldn’t afford THAT MUCH of a jump so we are filing BK and losing our home. So much for the ‘AMERICAN DREAM”!

  3. Brainy Smurf Says:

    Hi Clarissa — for a jump like that to occur, it’s very unlikely that you actually had a fixed-rate mortgage.

    Chances are, it was “fixed” at a low teaser rate for a few years and then “adjusted” to make up the difference. A re-assessment and tax adjustment just aren’t going to add up to $1500 extra per month.

    It sucks that you’re on the road to losing your home but you have to keep things in perspective — a home with a $3500/month mortgage bill, in my opinion, is well beyond the “AMERICAN DREAM” and chances are, it was also beyond your means too. :0(

  4. Confused first time homeowner Says:

    Thank you for clearing this up!

  5. So angry and broke Says:

    We just had this happen to us. We had a $812 (fixed rate) monthly payment that went up to (and fluctuates) $1150 a month. We have 2 small babies and this is really hurting our family. I really hope next year is better. Things have been so rotten for us. :/

  6. So angry and broke Says:

    Oh and what’s worse is I didn’t know that this could happen. I feel like a fool for not knowing this could happen. I’m so angry at myself.

  7. This is crap! we went with a fixed because I wanted to know what our payment would be for the next 30 yrs and not have to guess and wonder and hope we could afford it, didnt know fixed isnt fixed at all!! we havent had a big jump “yet” just an extra 30 bucks two yrs in a row, its only went down once and that was after the first yr! guess we better count our blessings it hasnt gone up a 100! still sucks though!

  8. We are already hurting now, dont know what we will do if it jumps by hundreds next yr!

  9. wow, this really explained things well. 6 months after my husband and I bought our house our mortgage went up $65. Not terrible, but we understood. Well, another year later our mortgage just went up another $150. $220 total from when we bought the house 1.5 years ago. Tough break :( Thanks for explaining this so well. We are about to adopt a baby so it kind of stinks, but God always provides! We’ll just cut back on other things.

  10. This happened to me, Mortgage went up about $200 while the taxes went down. How can this happen?

  11. Brainy Smurf Says:

    The only way I can think that would cause this is that your Homeowners Insurance premium must have skyrocketed…

    Also, where do you live? I didn’t think property taxes *ever* went down. ;)

  12. My bank keeps telling me that the escrow account and the mortgage have nothing to do with each other. My house insurance and taxes are all included in the mortgage. Talking to the people in the mortgage dept are like talking to lawyers. Hello if it didn’t have anything to do with my mortgage why is my mortgage going up every year HELLO.

  13. That’s why you take care of your own escrow to avoid this.

  14. My note just went up $125 I can’t afford that some i going to lose my home to.

  15. Is there anything we can do to lower it? I’m guessing (embarrassed to admit, I haven’t read my entire statement either-yet. ) our in tease is from escrow shortage but am not positive. Our payment has gone up over $100 do two years in a row now. You add a new baby to the expenses and we are flat broke and starting to dig. This is NOT what we envisioned when moving.

  16. This happened to me too. There has to be something we can do. I’m only one person in this house. I think they really want you to loose your home.

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