Home Loans California & Arizona

My mortgage payment went up and I do not know why. How can my mortgage payment increase when I am on a fixed interest rate home loan.

When I bought my house I signed a 30 year fix term but yet my monthly mortgage payment went up, why? The are a couple reasons as to why your mortgage payment increased. 

One reason is that your property taxes increased, when the county assesses your property's value, that will change your mortgage payment weather up or down and as of late (years 2015/2016) the values have been increasing. As property values increase so will your property tax amount. There is an advantage of owning a home and that is you can write off the property taxes when filing your income tax returns (consult your tax adviser on tax benefits).

As you make your monthly mortgage payment the lender sets your taxes in an escrow account that builds each month and every 6 months the lender will pay the property tax invoice. You will always receive the invoice from the county for your records, but if you have an impound account with your lender, then your lender will pay the house tax to the county on your behalf from that escrow account you have been adding to each month within the mortgage payment.

When your current lender budgets for the amount from the previous tax invoice, but once the new tax year is due and the amount happened to increase from the previous tax bill then the escrow account will be short because there is not enough money in the impound account to pay the new adjusted property tax amount. Also, the lender will require a 2 month reserve in the escrow account as well.

Example: if your county property tax is an average of $200 a month then you will need to have $800 in the escrow account so the lender can pay the 1st or 2nd half of the property taxes of $600 and the $200 is left in the account for reserve requirements and the reason for the 2 months reserve requirement is to budget for the increase in taxes that may acquire.

If your property's value increased and caused the property tax to increase from $1200 a year to $1400 a year then your mortgage payment will increase to cover the new amount and the reserve requirements. This can be a shock in your monthly budget, the good thing is you can write off the taxes so it should offset that increase. Be aware as values increase in your neighborhood, anticipate your mortgage payment will adjust in the coming months due to property tax increase. 

The other item that will increase your monthly mortgage payment is the HERO program (if you took advantage of this program) through the county that you used to improve your house with energy efficient improvements. Hopefully the county and/or contractor advised that you will repay the HERO program through your property tax bill, do read the terms and condition of any energy efficient items before signing anything. 

The last item that may increase your mortgage payment is, the homeowners insurance. As your property values increase so will your insurance, which you can shop around for. Having multiple policies under one insurance company should offer a discount, shop around once a year to ensure the coverage, deductible and annual premiums are with in line of what is being offered with other companies, that can help manage the mortgage payment. If you elect to switch insurance company's, do notify your lender immediately so they have the updated information on hand, you do not want the policy to lapse. 

If you have mortgage insurance in the mortgage payment, that is a set amount and will change. The mortgage insurance payment will remain the same amount throughout the life of the loan or have the opportunity to drop off depending on what type of home loan program you closed with. If you are unsure about your mortgage insurance, call me and let's review that line item in your payment.

As property values go up or down, this will have an impact on your monthly mortgage payment in those two areas, your property taxes and homeowners insurance. As the county re-assess your property' value on annual bases, this may have a direct impact with the mortgage payment if you pay the taxes and insurance within that payment.

Do review your county property tax invoice and homeowners insurance as the statement comes in ensure the assessed value is consistent with the values in your neighborhood and the homeowners insurance has the proper coverage with the agreed upon deductible.

Do be an informed homeowner when it comes to the annual property taxes and homeowners insurance. If you have any questions regarding a refinance home loan, do not hesitate to reach out to me to discuss your goals at 909-503-5600 or connect with me HERE. I look forward in hearing from you.

Posted by Nathan Rufty on January 31st, 2016 7:32 AM

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