Besides having a property that is literally all yours, one of the main reasons homebuyers often decide to pursue homeownership is to escape the unpredictability of rental rates. Landlords can jack up rent prices at their discretion, and you're expected to either pay up or move out.
In many cases—for those homeowners with fixed-rate mortgages anyway—the principal and interest portions of your monthly mortgage payments have some sort of stability over the life of your loan.
There are instances where your mortgage payments can change, however. We highlight some common reasons below.
- Although a fixed-rate mortgage guarantees a fixed payment for principal and interest, your total payment can occasionally change.
- Property taxes, insurance, and private mortgage insurance are some of the main payment components that can change.
- You can also experience payment changes if you refinance or had an adjustable-rate mortgage.
- If you think your payment has changed in error, you should contact your loan servicer immediately,
Your Homeowners Insurance or Property Taxes Increased
Monthly mortgage payments include four components that are collectively called PITI—principal, insurance, taxes, and insurance. The property taxes and homeowner's insurance portions of your mortgage payment are often held in an escrow account so your mortgage servicer can make sure those obligations are paid every year. You pay 1/12 of the total amount of your taxes and insurance bills every month.
Property taxes are calculated based on your home's value, so if the price has appreciated over the year then you might see an increase in your tax bill. Additionally, if you change your homeowner's insurance policy by adding a rider or increasing the amount of your coverage in other areas, your insurance premium amount would likely rise.
When your property taxes or homeowners insurance increase—or decrease, for that matter—your monthly mortgage payment will also be affected.
You Eliminated Your Private Mortgage Insurance
If you put down less than 20% of your home's purchase price at the closing table, you're required to pay private mortgage insurance (PMI) every month until your loan-to-value ratio reaches 80%.
Once you reach 20% equity in your home, you are eligible to reach out to your lender and request a cancellation of your PMI policy. Otherwise, your lender will automatically cancel PMI when you reach 22% equity in your home.
The removal of PMI would affect your mortgage payment by shaving some money off of it every month.
Keep in mind private mortgage insurance applies to borrowers with conventional loans who put down less than 20% for their home purchase. Most FHA borrowers who put down less than 10% will pay mortgage insurance as well—often referred to as a mortgage insurance premium—but this product operates somewhat differently from PMI.
Your Mortgage Interest Rate Increased
Not all mortgages are created equal. Some mortgages have fixed rates and others have adjustable rates. Adjustable-rate mortgages (ARM) are loans that start off with a fixed rate for a predetermined amount of years, and then once those years end, the interest rate adjusts annually.
ARMs usually start out with interest rates that are lower than fixed-rate mortgages, though this changes once the rate starts adjusting. ARM rates are tied to an index, which is a broader measure of interest rates, according to the Consumer Financial Protection Bureau. When the index fluctuates, so does your interest rate, and this impacts your monthly mortgage payment.
You Refinanced Your Mortgage
Perhaps you entered the market at a time when mortgage rates were higher, or your credit score put you in a mortgage rate that you aren't thrilled about. Either way, you've done the work to improve your credit profile and rates are also more attractive, so you're ready to refinance.
Whether you extend or reduce your loan term, your monthly mortgage payment will be affected. If you refinance into a shorter-term, your monthly payment will be higher but you'll pay less interest. If you decide to refinance into a longer-term, your monthly payment will drop but you'll pay more in interest over the life of your loan.
Your Lender or Servicer Made a Mistake
Another way your monthly mortgage payment might change could just be the result of your lender or mortgage servicer making an error.
The CFPB recommends calling your servicer to make them aware of the suspected error. The bureau also provides the following tips:
- Ask for a corrected statement.
- Ask for a reference number and the name of the representative you speak with.
- Take detailed notes and make note of the date and time of your conversation.
- If the error isn't fixed over the phone, send a "notice of error" to your servicer's address.
You can experiment with the effects of different changes to your monthly payment using our mortgage payment calculator.