5 Reasons Your Monthly Mortgage Payment Has Changed
Understanding Outside Factors That Can Affect Your Payment
Besides having a property that is literally all yours, one of the main reasons homebuyers likely 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.
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 homeowners insurance portions of your mortgage payment are often held in an escrow account so your lender or 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 homeowners 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.
Your Eliminated Your Private Mortgage Insurance
If you put down less than 20 percent of your home's purchase price at the closing table, you're required to pay private mortgage insurance every month until your loan-to-value ratio reaches 80 percent.
Once you reach 20 percent 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 percent 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 percent for their home purchase. FHA borrowers who put down less than 20 percent will pay mortgage insurance as well — 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 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.