My Monthly Mortgage Payment Just Went Up. Here’s Why Yours Might, Too

In the middle of the holiday season last year, my wife and I received a notice that gave us some sticker shock. The payment on our 30-year fixed-rate mortgage was increasing by $106 a month, jumping to more than $2,789. 

As homeowners, we’re used to budgeting a set amount toward paying off our home loan each month. We didn’t factor in the likelihood that our mortgage bill would increase. 

Mortgage payments can change yearly, especially if you pay property taxes or insurance through your mortgage company. There are other reasons why your monthly mortgage payment might go up, whether you have a fixed-rate or adjustable-rate home loan. Here’s how to prepare, and how you might be able to lower your monthly amount. 

Read more: Mortgage Payments Are Just the Start. Here’s What Homeownership Really Costs

Escrow account shortages

Principal and interest are the two biggest factors that make up a mortgage payment. Principal refers to the actual sum of money you borrowed, and interest is the extra fee you owe for borrowing the money. If you take out a fixed-rate mortgage, the principal and interest payment will remain unchanged until you pay it off or refinance the loan. 

However, if you took out an FHA loan or put down less than 20% on a conventional mortgage, your lender may have set up a mortgage escrow account, where money is deposited to cover a portion of other homeownership costs. For example, you’ll often pay property taxes and homeowners insurance through an escrow account, with a portion of your overall monthly mortgage payment going toward these expenses. 

In my case, we were hit with an extra $106 each month to cover a shortage in our escrow account. Our loan servicer had determined a minimum balance we needed in our account, but due to a spike in homeowners insurance and property taxes, we didn’t have enough funds to cover the costs. Spreading the shortfall over the next 12 months led to an increase in our monthly mortgage payment.

Interest rate changes 

If you’re wondering why your mortgage payment went up, first look at the type of home loan and your interest rate. If you took out an adjustable-rate mortgage, or ARM, you should be prepared for big changes in your mortgage payments due to that adjusted interest rate. Depending on what the market looks like, you may need to be ready to hand over a much larger chunk of money each month due to a higher rate.

Property tax increases

Property taxes could be included in your monthly mortgage payment, and they tend to move in one direction: up. According to CoreLogic, annual property taxes on single-family homes increased by an average of 5.1% between 2023 and 2024. 

Deborah Foley, a public relations manager for SolarReviews in Charlotte, North Carolina, has felt the sting of surging property tax bills. When she and her husband purchased a home in an up-and-coming neighborhood in 2017, the tax assessment was under $100,000. Since then, it’s gone up over five times, increasing their property tax payments by almost 200%. 

If you’re hit with a higher tax assessment based on the assessed value of your home, you don’t have to accept it automatically, said Shmuel Shayowitz, chief lending officer at Approved Funding. “If you see that your home taxes have increased disproportionately to your neighbors, contest it with your town or village and ask your lender for a new analysis,” he said.

Homeowners insurance spikes

Homeowners insurance is another expense that could be included in your monthly payment that increases regularly. Between 2018 and 2022, homeowners insurance premiums increased at 8.7 times the rate of inflation. Homeowners in certain parts of the country saw even bigger price jumps: In Texas, Colorado, Arizona and Utah, homeowners saw more than 50% jumps in their insurance premiums between 2017 and 2023. 

While many assume there’s nothing to do in that situation, Shayowitz said homeowners should shop around for a different insurance policy. “Find a better policy or readjust your terms and conditions. Bundle insurance with auto and the like to save,” he said. 

Read more: Insurance Premiums Spike as Natural Disasters Strike. What Homeowners Can Do

How to know if your mortgage payment is going up

Expensive homeownership costs can create major stress on your monthly budget. While it’s normal for your mortgage payment to increase, read the fine print to spot any potential errors. Your monthly bill could have gone up due to new servicing fees, or your lender could have just made a mistake. 

Before your monthly mortgage payment changes, you’ll likely get advance notice showing how much you’ll owe and why, which can help you prepare. 

“If you have an ARM, your lender should notify you two to three months before your payment increases,” said Sebastian Frey, a broker with Compass in California. “If your taxes and insurance go up, as they generally will every year, your lender should notify you 30 to 60 days before they increase your payment.”

If your payments are increasing to account for an escrow shortage, you can talk to your servicer about making a lump sum payment to cover the shortfall. In my case, I preferred to add smaller amounts to my monthly payment rather than making a one-time deposit of more than $1,200.

How to make your mortgage payment go down

A lot of different factors could make your mortgage bill go up, but there are ways to lower your payments, too. In rare cases, you might receive an escrow analysis that shows a surplus based on your payments, which can result in an adjustment with a lower monthly bill. 

There are other opportunities within your control to make your payments more affordable:

• Get rid of private mortgage insurance: If you made a down payment of less than 20% on a conventional loan, you may be paying private mortgage insurance premiums. However, you don’t have to wait until you accumulate a 20% equity stake in your property to eliminate PMI. Since home values have surged throughout the country in recent years, try estimating your property value. If your home has appreciated enough, talk to your servicer about scheduling an appraisal. I had our condo reappraised in 2020, which helped us eliminate PMI and reduced our monthly bill by more than $225. 

• Refinance: If you’re struggling to cover your monthly payments right now, you can look into refinancing options to save money. Keep in mind, however, that you’re going to need to find a combination of rate and term length that will add up to meaningful monthly savings. You’ll also need to be prepared to cover closing costs on the new loan. 

• Recast: A lesser-known option, recasting your mortgage involves paying a large chunk of money that your lender uses to recalculate your monthly payments. This is a good option if you work in a job that might reward you with quarterly commissions or a big annual bonus. Talk to your lender about your options first. Don’t just make a big payment and assume it will be recast. 

Even if you can’t reduce your mortgage payment, you can accelerate getting debt-free by paying off your mortgage early. I just logged into my mortgage account and noticed that paying an extra $100 monthly would fast-track our loan payoff by 22 months. 

So, whenever you have a bigger-than-expected amount in your bank account, consider contributing more to your principal. Every bit counts as you work toward homeownership without the burden of a mortgage.