Why Did My House Payment Go Up $80 Per Month?!


 

As a first-time home buyer, you're so excited.  By the time you get through the loan process, you feel like you've completed a triathlon. Then there's insurance and taxes to think about, as they can have a big impact on your monthly budget.

When you get a loan to purchase a home, your bank or lender may use an “escrow” account for your mortgage.  A mortgage escrow account has 3 categories: principal, interest, and escrow.

When your insurance is paid using an escrow account, the lender will request that they be added to your home policy, using a “mortgagee clause.” The mortgagee clause includes the lender’s name and billing address for insurance.  This ensures that the lender will receive all policy change notifications, renewal notifications, and cancellation notices related to your property insurance. They do this to help protect their financial interest in your property until the loan has been paid in full.

When the lender gets an insurance invoice, they will typically pay the insurance premium in advance for an entire 12-month policy period. Most insurance companies offer a substantial discount for paying in full for the year, and you ultimately benefit from the paid-in-full discount when you use an escrow account.

Once each year, your lender will provide an escrow statement, which provides details about payments made from the account for insurance, taxes, etc.  This statement also shows projected escrow shortages or surpluses.

Here’s where it gets sticky.  Since the mortgage company makes the annual insurance payment, many homeowners are not aware of how much their home insurance really costs. If your insurance goes up $500 in one year, and your taxes also go up $500 in one year, but money is not added to your escrow account for the projected shortage, your monthly installment to your lender will increase significantly. 

If you’re unsure how to read your annual escrow statement, contact your lender.  Or, you can make it a habit to compare your insurance renewal and property tax bill to the previous year’s amounts. This will give you time to contact your insurance agent and the county appraisal district, to see if you can get your rates lowered before it affects your monthly installment to your mortgage company.

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