Three Reasons Your Mortgage Payment Fluctuates
A mortgage payment isn't always a static figure; various factors can cause it to change. Understanding the factors that affect your mortgage payment can help you better manage your finances and plan for potential changes. The following are three primary reasons why your mortgage payment may change.
Escrow Account Adjustments
For many homeowners, the mortgage payment includes an escrow account that covers property taxes and homeowners’ insurance. These expenses can vary from year to year, directly impacting your monthly payment. If property taxes increase due to a reassessment of your home's value or a hike in tax rates, your escrow payment will need to adjust to cover the higher costs.
Similarly, any changes in the cost of your homeowner's insurance, whether due to changes in the policy or shifts in the insurance market, can also impact your monthly payments. Regular reviews by your mortgage servicer are typically conducted to ensure accurate escrow payments are made and to make any necessary adjustments.
At 1st Security Bank, July kicks off what we refer to as ‘annual escrow analysis season.’ As part of our continuous effort to help our customers better understand these adjustments, we’ve created resources to help clarify what an escrow account is and how it works, as well as information about our annual escrow analysis process at https://www.fsbwa.com/escrow-account for your reference. You may also call us at (800) 683-0973 Monday through Friday, 8:30am to 5pm PT with any escrow or escrow analysis-related questions.
Mortgage Rate Variations
Changes in the interest rate are a common factor for those with certain types of home loans. Adjustable-rate mortgages (ARMs), for example, feature interest rates that can increase or decrease at specified times throughout the life of the loan, typically reflective of changes in the overall economy.
This means that after an initial fixed-rate period, your mortgage rate may rise or fall, leading to corresponding changes in your monthly payments. If you have this type of loan, it's important to understand the terms of your ARM to anticipate potential changes in your payments.
Other loan types like construction loans and interest-only mortgages can also result in variable payments. Construction loans may see fluctuating payments as disbursements are made during the building process. Interest-only loans, on the other hand, require payments on the interest alone for a set period, after which payments increase as you begin to pay down the principal.
Loan Structure Features
Some mortgages come with specific features that can cause changes in payment amounts. For example, a mortgage might have a buy-down clause, where initially lower payments increase over time as the buy-down period expires. Understanding these features and how they affect your payment schedule is essential for avoiding any surprises.
Understanding why mortgage payments can change is important for homeowners to manage their finances and avoid potential financial strain. Whether these changes stem from escrow adjustments, rate changes, or specific loan features, being informed can help you plan for these fluctuations and make informed financial decisions. Communicating with your lender will help you manage these changes effectively, avoid unexpected financial strain, and plan for the future.
