If you are new to repaying a mortgage loan, or maybe just need to freshen up your knowledge on why your monthly payment with a fixed rate mortgage has changed, here is a quick run down!
Most loans, including government insured and conventional have a side bucket of funds that are attached to your loan, kind of like an additional savings account for your mortgage, call the escrow. This bucket is added to monthly when you pay your mortgage by a predetermined amount calculated out by your annual property taxes, special assessments, insurance premium and maybe mortgage insurance.
Your lender will pay your property taxes, insurances and specials out of this savings account as required by the local government and insurance company. This is nice because it is one less thing you have to worry about, but yes, also does affect your overall monthly mortgage payment as the cost of these need to be included to keep your escrow bucket in check.
Now, for why this can change your monthly payment. Unfortunately, taxes go up, not usually down, specials can go either way as well as insurance. When any one of these changes, it will affect your overall monthly payment. Most lenders, do this on an annual basis and will send out a Escrow Analysis of where your escrow is at and where it needs to be, which might effect that monthly payment up or down.
If you do not have an escrow bucket, then you are in charge of paying your insurance and taxes out of pocket when they are due but isn't the normal lending practice for primary home mortgages as the lender likes to have the safe guard of knowing these are getting paid in full and on time.
Looking for more information, we have lenders that we can connect you with or check out this quick video.
Thanks North Dakota Housing for this video of great information!
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