If your fixed-rate mortgage payment jumped, the rate didn’t change. Your escrow did, because property taxes or homeowners insurance rose and your mortgage servicer added a shortage on top. The shortage is a one-time catch-up, but the bills recur, so shop your homeowners policy and appeal your tax assessment to lower the part that stays.
Your mortgage servicer, the company that collects your payment, holds part of it in escrow for property taxes and homeowners insurance, then pays those bills when they come due. Our guide to the true cost of homeownership warns buyers that escrow can rise on any loan. Once it has, the escrow analysis your servicer sends every year shows why.
Here are the four lines that matter on a sample statement:
- Projected disbursements of $6,000 are next year’s tax and insurance bills, up from $4,800. Divided by 12, that lifts your escrow deposit from $400 to $500 a month.
- A projected low point of $0 is the smallest balance your account would reach at that deposit.
- A required minimum of $1,000 is the cushion, which federal rules cap at one-sixth of the year’s bills.
- A shortage of $1,000 is the gap between those two lines, about $83 a month if spread over 12 months.
So the payment rises $183 a month, not the $100 the higher bills alone would add. That’s the double hit, and only one part of it goes away on its own.
You can pay the $1,000 at once, and the new payment rises only $100. Or let it spread over a year or more and repay the same $1,000 in equal slices, so the choice is about cash flow, not cost. If the lump sum would drain your emergency fund, spread it.
The remaining $100 is the bills themselves, and it stays until they come down. Get homeowners insurance quotes before your policy renews, and if you switch, tell your servicer so escrow pays the new insurer. Then appeal your property tax assessment if it overstates your home’s value. Servicers can rerun the analysis midyear, so ask for one once a lower bill is on file.
Your insurance renewal and tax bill show each increase before the escrow analysis does. When either arrives higher, divide the difference by 12 and budget for it from that month on, and next year’s statement will show a payment you already planned for.
Editorial & Advertiser Disclosure: The editorial content on this page is not provided, commissioned, reviewed, approved, or otherwise endorsed by any advertiser. Opinions expressed here are ours alone, not those of any advertiser. The offers that appear on this site are from companies that compensate us. That compensation may influence which products we cover and where and how they appear on a page – including the order in which they appear – but it does not influence our evaluations, ratings, or opinions. We do not include every company or offer available in the marketplace.
Related:
