Why Did My Mortgage Payment Increase? Understanding Escrow in Texas

Why Did My Mortgage Payment Increase? Understanding Escrow in Texas

If you have a fixed-rate mortgage, you might expect your monthly payment to stay the same. Then one day you receive a letter from your mortgage company saying your payment is increasing.

Many homeowners immediately assume their lender made a mistake.

In most cases, the increase has nothing to do with your interest rate.

Instead, it's usually related to your escrow account. Each year, your mortgage servicer reviews the amount collected for property taxes and homeowners insurance. If those expenses increased or there wasn't enough money in the account to pay them, your monthly payment may rise to make up the difference.

What Is an Escrow Account?

An escrow account is a separate account managed by your mortgage company. Every month, a portion of your mortgage payment goes into this account to pay expenses such as:

• Property taxes
• Homeowners insurance
• Flood insurance, if required
• Mortgage insurance, when applicable

Instead of paying these bills all at once, you contribute a small amount each month.

Why Payments Increase

The most common reasons include:

• Higher homeowners insurance premiums
• Increased property taxes
• An escrow shortage from the previous year

Even if your loan has a fixed interest rate, the escrow portion of your payment can change each year.

How Can You Reduce Future Increases?

Review your homeowners insurance every year, verify your homestead exemption if you qualify, and carefully review your county appraisal notice. Shopping your insurance annually and protesting an inaccurate property valuation may help reduce future escrow increases.

If your mortgage payment recently increased and you're not sure why, I'd be happy to help you review the numbers. As both a real estate broker and insurance agency owner, I can help you understand the factors affecting your payment.