Mortgage Payments

My Fixed-Rate Loan Payment Jumped! What Happened?


You took out a fixed-rate mortgage loan because you wanted certainty in your monthly mortgage payments. With a fixed-rate loan, your interest rate remains the same throughout the life of your home loan. This keeps your monthly payment more consistent.

But here’s the key: Your payment will be more consistent, but this doesn’t mean that it won’t ever change.

That’s because while your interest rate won’t change, the other portions of your mortgage payment might. This is true if, like the vast majority of homeowners with a mortgage, you have entered an escrow agreement with your lender.

What’s Escrow?

In an escrow agreement, you pay a bit more with each monthly mortgage payment. Your lender deposits these extra dollars into a non-interest-bearing escrow account. Your lender will dip into this fund to pay your property tax and homeowners insurance bills on your behalf when they come due. Most lenders require that their borrowers enter into such an escrow agreement.

Other Reasons For Increases

Your homeowners insurance could increase because you added a backyard pool to your property or the cost to replace your home increases due to rising construction costs. If this happens, your lender will need to increase the amount of money you are sending to your escrow account to cover your higher insurance payments.

Each year, your lender will review your escrow contributions. If your lender believes you need to add more to the account, your monthly payment will increase. Your lender will send you a written notice, though, before your monthly payment increases.

So, yes, there is less uncertainty on your monthly payment amount with a fixed-rate mortgage compared to an adjustable-rate one. But be aware that there is still the chance that your mortgage payment may rise, even if your interest rate won’t.

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