Many homeowners have had their mortgage payments change recently and there are multiple reasons why this may have happened, as discussed in this article.
You’ll need to have the mortgage statement from your lender handy to find out more, which should indicate why the payment has increased. I’ll cover some of the common reason why in this article.
Knowing what to look for or questions to ask your lender would be beneficial in understanding the changes and why they happened. Acting sooner rather than later is key to getting a quick resolution!
Reviewing Your Mortgage Statement
A standard mortgage statement is legally required to be provided to mortgage holders by the lending company. Statements are mailed out every billing cycle unless you have chosen to receive electronic statements via your mortgage providers online portal.
I personally like getting the monthly statements physically mailed to me because it forces me to check payments and get the latest status on the loan. Like most people, my home mortgage is one of my largest payments so want to ensure I am on top of it.
Before the 2008 financial crisis, every mortgage lender had their own format for statements and some information wasn’t disclosed to mortgage holders or was disclosed in unclear terms that weren’t easy to understand.
However under the Dodd-Frank Act, lenders are legally required to follow a standard format and include:
- Current mortgage information
- Principal balance
- Interest rate and any changes to the rate
- This month’s payment amount
- Payment breakdown of charges
If the interest rate changes are significant, it is also worth getting a few free mortgage refinance quotes while rates are still historically low.
Your Mortgage Escrow Changed
Unless you made a separate agreement with the lender to pay your own homeowner’s insurance and taxes when you took out the mortgage loan, you will have an escrow account.
An escrow account is money held by the lender to pay for taxes and insurance when those bills come due. Payments into escrow are made monthly with the mortgage payment and is labeled as “Escrow” on the mortgage statement.
With home prices having increased considerably over the past year, property taxes have also gone up in most locations.
Similarly, the cost of home insurance would have risen given the higher value of your house. So shop around and get some free quotes to see if you can lower your home insurance, before you have to renew it.
You would have likely received your annual escrow statement/true-up, like I did recently, which will reflect the higher property taxes and potentially higher home insurance.
Because your escrow amount is based on a forecast of the next 12 month of taxes and insurances, if your insurance or property taxes increase your escrow requirement, then your mortgage payment will also go up by default.
As an example, consider a homeowner – Mark – who lives in Austin, Texas. Property prices have increased considerably in this area are over the last year. So, he should not be surprised when he gets his latest mortgage escrow statement and sees a $200 p/month increase to his normally $2000 monthly mortgage payment.
A look at his mortgage statement indicates that the $200 increase is because taxes have increased due to the local home assessor’s office increasing the value of homes in the area which raised property taxes.
This tax increase is reflected in the new escrow amount in the monthly mortgage statement and this amount is the new mortgage payment amount until next year, when another review will happen.
Your Bank or Financial Institution has added new fees
The current mortgage statement may have additional fees that last month’s statement didn’t have. One common fee that could be charged is a late payment fee. Last month, Nancy’s mortgage payment was $1,100 but this month her payment is $1,210 because her payment was late, and the bank charged a 10% late fee.
At the top of the statement, you will see the payment date and a grace period. If the payment is not received within that grace period, lenders will charge a late fee. If you have never been late with a payment before, you can try calling the lender and asking for the fee to be waived.
Some homeowners can’t afford their mortgage for various reasons so if your long-term financial picture looks like you will not be able to make consistent, on time payments, let the lender know and ask what your options are. Sometimes, payments can be tacked on to the end of the loan if the situation is temporary, like you’re looking for a new job after being let go.
Refinancing is an option in certain scenarios but only if the account is in good standing and you have a good relationship with the lender. There is no guarantee of refinancing, but chances are better if you haven’t missed payments yet.
Interests Rates Were Changed on Adjustable-Rate Mortgages (ARM) by Your Lender
Not every homeowner knows that they have an Adjustable-Rate Mortgage until the mortgage amount changes. ARMs usually are the best-looking option at the start of the loan because the interest rate is lower than other mortgage options available.
However, the interest rate on these loans changes based on the market after the fixed period has expired.
Alan’s mortgage payment has increased this month after 5 years of having the loan and he has discovered that he has a 5/1 ARM that had a fixed option at the same interest rate for the first 5 years and now the rate will change once per year.
Convertible ARMs can be converted to a fixed rate loan but if your loan doesn’t qualify for conversion then you may want to look at refinancing if your rate hike is no longer affordable.
Principal is Now Being Paid on Interest-Only or Pay-Option Loans
Interest-only mortgages are great for homeowners that move often or are purchasing this home as a short-term investment but are sometimes marketed to first time homebuyers that don’t fully understand what they are signing.
Homeowners that want to live in the house long term face an unpleasant surprise when this ARM structured loan suddenly has a much higher payment.
Sidney purchased a home for his family 10 years and 1 month ago using an interest-only loan for $100,000 at a 5% rate with an interest-only note for 10 years and the mortgage payment was an affordable $417/month. This month, the payment has almost doubled now that the principal is due!
He didn’t know that he could make extra monthly payments towards the principal of the loan and is now looking at refinancing for a higher interest rate and no equity in the home he has paid on for 10 years.
A pay-option loan can be structured 3 ways:
- Paying on both principal and interest.
- Payments cover just the interest but no principal.
- Limited payments that don’t cover the full interest amount and no principal is covered. (The extra interest is added on to the principal amount monthly.)
On either an interest-only or pay-option loan, the monthly payment increase can be astronomical when the loan starts collecting the full principal and interest payments monthly so it’s best to consider refinancing before this starts or move to a more affordable housing option.
A Mistake Was Made by the Lender on Your Account
It’s possible that the lender made a mistake and that’s why this month’s mortgage payment is higher than normal. The best way to handle this situation is to call the lender to discuss what happened and ask if there is a reason why the payment amount is higher this month.
If you determine with the customer service representative that the payment amount is a mistake, be sure to get a corrected statement sent to you before making the payment, if possible. It’s easier to wait to pay than it is to get a refund of your money from some lenders.
While on the phone, take notes on what the call was about, who you spoke to, the date of the call, their employee ID number or mortgage officer number, and a reference number for the transaction so that if the lender doesn’t correct the situation you have some ammunition to go back to them with rather than pay a late fee or other charges that you aren’t supposed to have to pay.
Ask when the corrected statement will be sent to you and how it will be sent. If you don’t receive it within an acceptable timeframe, send a notice of error to the lender’s mailing address that is listed for errors or information requests. (Note that this address might be different from the address on your mortgage statement.)
Politely explain in the letter that there is an error on your account and include the information you wrote in your notes during your phone call to the company with the customer service representative.
Jessica received this month’s mortgage statement, and the amount was $200 higher than expected so she called the bank to ask about the charges and they found that it was a mistake. She waited patiently for a corrected statement and never received it.
A call back to the lender didn’t provide a solution so she sent a notice of error, and the corrected statement was mailed to her quickly. After paying the corrected amount, her account was back into a “paid on time” status. The lesson learned was to always check the amount being paid each month and to ask questions if it changes.
Monthly mortgage payments can change, especially if the loan is not a fixed rate loan. Understanding the terms of the mortgage before signing the loan documents is important.
If you don’t understand the terms of the loan or the documents that you are signing, don’t sign them. Ask questions and get whatever information you need to make an informed decision.
Buying a home for your family is a major life decision and should only be entered into when you are fully ready and financially prepared.
If your mortgage payment changes, read the statement, and know what you are paying. If the payment is set on autopay to be drafted from your bank account automatically, check how much is being paid and make sure it matches the amount you agreed to pay. If it doesn’t match, ask questions until you understand why the payment is different.