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WHY IS MY MORTGAGE PAYMENT GOING UP?

  • Writer: Treavor Dodsworth CFP®, CPA, CKA®
    Treavor Dodsworth CFP®, CPA, CKA®
  • Jun 27
  • 2 min read

You are minding your business enjoying a normal sunny summer day. Then you open the letter and see yikes- your mortgage payment is going up $250 per month due to an escrow analysis. When you are already struggling with monthly financial margin this feels like a gut punch.

Mortgage Payment

Oftentimes there are three primary components that make up your mortgage payment- principal, interest, and escrow.


The principal portion of your payment is the amount that actually is paying down your loan. With your traditional amortization schedule the amount of your payment that goes towards principal is typically increasing over time.


The interest portion of your payment is the actual mortgage interest. This oftentimes is roughly equal to your loan balance times your interest rate divided by 12. For example the interest portion of a 6% mortgage with $300K outstanding is likely about $1,500 that month.. The portion of your payment going to interest is going down over time with your typical amortization schedule. For this post we are assuming you have a fixed rate mortgage and not a variable one.


The third piece that I mentioned was escrow. Escrow is typically used to pay property tax and home insurance. It is not uncommon for an "escrow analysis" letter to come along with an updated higher payment. This is because your property taxes and insurance may rise over time and therefore the amount you were paying into escrow is no longer high enough to cover the cost.


There are a few things you can do but I will mention two:

  1. Take a look at your property tax bill. Are you taking advantage of all the property tax deductions/credits available in your area? Does the valuation look incorrect and does it make sense to appeal it?

  2. Consider getting a quote from 2-3 other property/casualty agents or brokers. Can you get appropriate or even better coverage for a lower price?

Simply managing the property taxes and insurance as best you can will help keep the amount you have to send to escrow lower over time.


Monthly Financial Coaching is not a lender or a property/casualty agent. Neither are any of its employees or owner. Please review your situation with the applicable professional.

 
 

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