Understanding Escrow: Why Your Mortgage Payment Went Up

If your monthly mortgage payment has gone up unexpectedly, you’re not alone. Many homeowners are seeing increases due to rising property taxes and insurance costs—things that are often paid through an escrow account. But what does that mean, and how can you stay prepared? Let’s break it down.

What Is an Escrow Account?

An escrow account is like a savings account that your mortgage company manages for you. Every month, part of your mortgage payment goes into this account to cover your property taxes and home insurance. When those bills are due, your lender pays them for you.

Why Are Mortgage Payments Increasing?

Even if you have a fixed-rate mortgage, your payment can still change. That’s because property taxes and insurance costs are rising, and when those costs go up, your escrow payment has to go up, too. Here’s what’s happening:

• Property taxes are increasing – 80% of homeowners in a recent survey said their taxes went up.
• Home insurance is getting more expensive – 70% reported higher insurance costs.
• Some homeowners lost their insurance – 27% were dropped by their insurance company and had trouble finding a new provider.

Why Do Some Homeowners Feel Caught Off Guard?

A lot of people assume their mortgage payment will always stay the same, especially if they have a fixed-rate loan. In fact, 45% of homeowners mistakenly believe this. But because taxes and insurance aren’t fixed, neither is the escrow portion of your payment.

What Happens If You Can’t Afford the Increase?

For many families, even a small increase in their mortgage payment can be stressful. A survey found that:

• Half of homeowners would struggle with just a 10% increase.
• 44% said a 25% increase would cause financial hardship.
• 49% would consider moving if property taxes got too high.

How to Stay Ahead of Escrow Changes

If you’re worried about your mortgage payment going up, here’s what you can do:

1. Check your escrow statement – Your lender should send you a breakdown of your escrow account every year.
2. Look at your tax bill – Property taxes can change yearly. If your home’s value goes up, your taxes might, too.
3. Shop around for insurance – If your premium is increasing, getting quotes from other providers might help you find a better rate.
4. Talk to your lender – If you’re struggling with payments, your mortgage company may have options to help.

Final Thoughts

Mortgage increases can be frustrating, but understanding why they happen can help you plan ahead. If you’re unsure about your escrow account or how to manage rising costs, reach out to your lender for guidance. The more you know, the better prepared you’ll be!