One of the great things about homeownership is being able to avoid unpredictable and unwarranted rental fees. For homeowners with fixed-rate mortgages, the interest on your monthly mortgage payments can provide that stability over the course of your loan.
However, there are cases where mortgage payments can change, many of which homeowners are unaware of. So what causes them to change? Let’s dig in.
Reasons monthly mortgage payments may change:
There’s an increase in your homeowners insurance or property taxes.
A monthly mortgage payment consists of four parts, which together create PITI — principal, insurances, taxes, insurance. Two portions of your insurance, property taxes and homeowners insurance, are typically held in an escrow account.
This ensures that your mortgage servicer is overseeing those obligations, and making sure payments are made on time. In addition, property taxes are determined based on your home’s value. So if the price of your home has increased over the last year, you might see an increase in your bill. In some cases, homeowners will also make changes to their homeowner’s insurance policy. This can also affect the amount you pay each month. Adding a rider or deciding to add more coverage in certain areas are just two ways a monthly bill may increase.
You’re no longer paying for private mortgage insurance (PMI).
A private mortgage insurance (PMI) is required to pay each month if you put down less than 20% when closing on your home. Once you reach 205 equity on your home, you can reach out to a lender and have them cancel the policy. If you don’t contact them directly, the lender will cancel it automatically when the equity reaches 22%. You might see a decrease in your monthly mortgage payment after removing the policy. However, It’s important to note that this process applies to those who have conventional loans and put down less than 20% during closing. For FHA borrowers, this process will look a little different.
Your interest rate increased.
Unfortunately, mortgages are not a one size fits all, and each mortgage varies depending on the circumstances. For example, some mortgages have fixed rates and others adjustable rates. Some are 15-year mortgages, some are 30-year mortgages, etc. An adjustable-rate mortgage begins with loans on a fixed rate. The length is predetermined, usually running over the course of a few years. Once that time is up, the interest rate will adjust each year. Many homeowners choose to go with an adjustable-rate mortgage because the interest rates are lower than those of fixed-rate mortgages. However, adjustable-rate mortgage rates are taken from an index, which is measured more broadly. So when that index changes, your interest rate changes with it — impacting your monthly mortgage payment.
There are a variety of reasons to refinance your home. Maybe mortgage rates have decreased, or your credit score prompted you to choose a mortgage you weren’t 100% on board with. Whatever the case may be, you might be looking to refinance if the market is fit, and you’re in a more positive financial situation. Regardless if you lengthen or shorten the loan term, your monthly mortgage payment will be affected. Refinancing to a shorter-term mortgage means you’ll pay more each month, but pay less interest. By choosing longer-term, you won’t pay as much each month, but your interest will rise over the course of the loan.
Your servicer or lender messed up.
While mortgage servicers and lenders are very diligent, human error is inevitable. If you think they may have made an error, ask for a new statement, along with a name and number of a representative you can speak to. Make sure you take notes throughout the conversation, and follow up by email or mail if necessary.
Need help navigating your mortgage payments? Ken Venick can help! He has over 30 years of experience in the mortgage loan business and can find you the right mortgage loan for your unique needs. Visit our FAQ page to learn more, and contact us today.