Can My Monthly Mortgage Payment Ever Change?
WHAT YOU'LL LEARN
What makes up your mortgage payment
Taxes and other factors that can cause fluctuation
The effect of buydowns and other special circumstances on your payment
WHAT YOU'LL LEARN
What makes up your mortgage payment
Taxes and other factors that can cause fluctuation
The effect of buydowns and other special circumstances on your payment
Once you close on your loan, you’ll start making monthly mortgage payments to your lender or servicer. Your payment should be the same throughout the life of your loan (assuming you have a fixed-rate mortgage). However, depending on your loan type and a few other variables, there might be some fluctuation in your statement.
What's in a Monthly Mortgage Payment?
Your monthly mortgage payment includes more than just the price of your home. Principal, interest, taxes, and insurance (PITI) make up your monthly payment.
The principal is the amount you borrow, and interest is the fee you pay for using your loan, expressed as a percentage – 6.0% etc. Taxes, specifically property taxes, are charged for real estate property (like the house, building, or land itself), and are determined by your local government. Insurance includes your homeowners insurance, private mortgage insurance (PMI) if it’s required, and any supplemental insurance, like flood insurance, if it applies to your property. Insurance protects both you and your lender from potential losses.
What Could Cause my Payment to Change?
Your payment went up this month? Here are a few possibilities as to why:
Your property taxes changed. Property taxes can fluctuate based on your local government’s decisions.
Additionally, your property value is annually assessed. Property value assessment requirements vary based on the area you live in, so check with your local Property Valuation Administrator (PVA) office for the specifics in your area.
Your insurance changed. We already learned that there are three different types of insurance you may be required to pay: homeowners insurance, private mortgage insurance (PMI), and supplemental insurance (flood, etc.). While you may not have PMI and supplemental insurance, homeowners insurance is required. Most lenders have you pay insurance through an escrow account, similarly to how you pay your taxes. If you change your homeowners insurance – for example, you change providers – your premiums might change, causing a shortage in your escrow account. Your mortgage payments may go up to cover the difference. Or, your premium might go down, which could lower the amount you owe each month in insurance, potentially decreasing your monthly mortgage payment.
Bye-bye, PMI!
Similarly, if you have a Conventional mortgage with PMI, but are approaching 78% of your home’s original value, your PMI is automatically canceled, lowering your monthly mortgage payment. Your original mortgage paperwork will show the date when this will occur, or ask your Mortgage Banker about refinancing to remove the PMI earlier if you’ve paid your loan down to 80%, or your home’s value has increased significantly.
You have an adjustable-rate mortgage (ARM). If you have an adjustable-rate mortgage (ARM), your mortgage payment might go up or down. One of the selling points of an ARM is that the interest rate is usually lower during the initial interest rate period than they are with a fixed-rate mortgage. After the initial interest rate period, however, the rate may change based on predetermined intervals.
Your loan has special circumstances. If you have a temporary buydown, your monthly payment will go up because your interest rate increases by a percentage of the original rate after a year(s). For example, for a 2/1 buydown, you’ll have a 2% lower interest rate for the first year of your mortgage, then 1% lower in the second year, followed by the original rate for the rest of the loan’s term.
Construction loans can also mean fluctuating payments as the principal changes according to disbursements made while your home is built. Or maybe you’re a home “flipper” and have chosen an interest-only (IO) mortgage to keep initial payments low. Your payments will go up when the IO period ends, typically after 10 years, unless you sell or renegotiate the terms.
Keep an Eye on Your Statements
It’s always a good idea to monitor your monthly mortgage payments, even if you have them auto-drafted from your bank account. This way you won’t encounter any unexpected surprises, and if there’s something you don’t understand, Atlantic Bay is here to help!
Yes. While a fixed-rate mortgage keeps your principal and interest the same for the life of the loan, your total monthly payment can still change if you escrow for taxes and insurance, since those portions can go up or down. Certain loan types, like adjustable-rate mortgages, temporary buydowns, construction loans, and interest-only loans, can also cause your payment to change on a predetermined schedule.
Most monthly mortgage payments are made up of PITI: principal, interest, taxes, and insurance. Principal is the amount you borrowed, interest is the fee charged for the loan, taxes are your property taxes, and insurance can include homeowners insurance, private mortgage insurance (PMI), and any required supplemental insurance like flood insurance.
Property taxes are set by your local government and can change from year to year, and your home's assessed value is typically reviewed annually as well. Since taxes are usually collected through your escrow account as part of your monthly payment, a change in your tax bill will raise or lower your overall mortgage payment.
If your homeowners insurance premium changes, whether from a renewal, a rate change, or switching providers, and insurance is paid through your escrow account, your monthly payment can shift up or down to reflect the new premium amount.
On a Conventional loan, private mortgage insurance is generally canceled automatically once your loan balance reaches 78% of your home's original value, which lowers your monthly payment. You may also be able to request PMI removal once your balance reaches 80%, or ask about refinancing if your home's value has increased significantly.
An adjustable-rate mortgage, or ARM, typically offers a lower interest rate during an initial fixed period, after which the rate can adjust at set intervals. For example, on a 5/1 ARM, the rate stays fixed for five years and then can adjust annually, which means your payment can go up or down depending on where rates stand at each adjustment.
A temporary buydown lowers your interest rate for an initial period before stepping up to your loan's actual rate. For example, with a 2/1 buydown, your rate is 2% lower than your permanent rate in year one, 1% lower in year two, and then moves to the full rate for the remainder of the loan, meaning your payment will increase at each step.
Yes. Construction loan payments can fluctuate as the principal balance grows with each disbursement made during the build. On an interest-only loan, payments are typically lower during the interest-only period, often around ten years, and then increase once that period ends unless the loan is sold, refinanced, or renegotiated.