My Mortgage Payment Dropped $150 Per Month

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My wife and I got our first mortgage bill for 2008 and our mortgage payment dropped $150 per month! We have a fixed rate mortgage and the lower mortgage bill is a result of a change in our property taxes and an adjustment in our escrow level. Changes in a mortgage payment are actually not…

My wife and I got our first mortgage bill for 2008 and our mortgage payment dropped $150 per month! We have a fixed rate mortgage and the lower mortgage bill is a result of a change in our property taxes and an adjustment in our escrow level.

Changes in a mortgage payment are actually not uncommon in the first few years of a mortgage.  The part of your mortgage payment covering principal and interest will not change unless you have an adjustable rate mortgage.

However, the portion of your mortgage payment that is held in escrow to cover taxes and insurance is subject to change. Many times the escrow amounts are based on an estimate of expected expenses, and changes in the property’s value or insurance premiums can affect the bill.

How Can Mortgage Payments Change?

Property Taxes

Your property tax payments will change any time the county decides to raise or lower your taxes. In our situation, we remodeled our basement and the county reassessed our home’s value at $30,000 above reasonable market value.

We decided to challenge our property taxes and we won. However, our property taxes were already locked in for the year as far as our mortgage was concerned so we paid the higher rate.

We received a refund from the county a few months after we paid our taxes, but it took a few months before the new tax rates showed up on our escrow account. Our mortgage payment was lowered to reflect that change. Next time, I will contact the escrow company myself to make sure they update their books more quickly.

Property taxes are normally adjusted by the county on a periodic basis, but can also change due to the homestead exemption, veteran, disability, or other filing exemptions.

 

Insurance Premiums

Most mortgage bills that have escrow accounts include insurance premiums in the payment. This guarantees the insurance payment is made and protects the lender’s investment in you. Insurance premiums usually don’t have extreme changes from year to year unless you make major upgrades to your property or your land is reassessed for natural disasters such as hurricanes, earthquakes, or flood plains.

Escrow Shortages

We pay our mortgage and property taxes through a mortgage escrow account. Monthly payments to escrow accounts are usually based upon 1/12 of the annual expected charges for property taxes, insurance, and anything else that may be covered. Laws also permit lenders to require additional monthly payments if the lender determines there is a deficiency in the escrow accounts.

This is what happened to us. When our property tax was unexpectedly raised and the escrow service paid the bill, our escrow account was withdrawn under the minimum balance. Our mortgage payment was raised last year to cover that difference (the payment was raised 1/12 of the difference to spread the repayment out over a year).

Now that our property taxes are lower, we have sufficient money in our escrow account and we no longer pay the additional charges. Escrow surpluses are required to be returned to the homeowner within 30 days of the period end.

Adjustable Rate Mortgages (ARM)

Some mortgages, such as ARM loans, provide for periodic adjustments to your principal and interest payment amount. Adjustable rate mortgages are not usually a good idea unless you plan on getting a low rate adjustable mortgage for a few years and either selling the house before your rates adjust upward or rolling that mortgage into a lower fixed rate before the mortgage rates change. Otherwise, you may find that your new interest rate makes your mortgage unaffordable.

Mortgage payments generally remain constant – but be prepared for some fluctuation in the bill.

Any time your property taxes or insurance premiums change, you will likely see a change in your mortgage payment. If you aren’t prepared, you could be in for an ugly surprise!

As for our new found wealth? My wife and I haven’t decided yet, but we may continue paying it toward our mortgage for the time being. That will help us reduce our outstanding loan and get our house paid off more quickly. 🙂

Mortgage payments can change through a mortgage refinance

This may be the most obvious cause to a change in mortgage payment and structure, but we would be remiss not to mention it.

Refinancing a mortgage can provide a number of uses, from lowering monthly payments to changing the length (or term) of the loan.

If you are looking to re-fi your mortgage, be sure to shop around to get the best loan for your financial and life situation.

Related Posts:

When Should You Refinance a Mortgage?

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Ron Russell says

    My lender (who purchased my mortgage) wishes to increase my mortgage an additional $100 per month over the projected $30 per month increase (to cover projected 2014 Taxes and insurance) to attain the 1/6 cushion allowed by RESPA. The alternative is for me to pay $1200 up front so my monthly mortgage will not increase $100 per month. This addiitonal $100 for a “cushion” is very steep for me and lender won’t budge.

    Am I in default of my loan and would my credit be hurt if I simply decide to pay on a monthly basis my principle and interest plus the projected monthly escrow amount that is to cover my Insurance and taxes in 2014. Essentially, I would not be contibuting only to the “cushion”

    • Ryan Guina says

      Ron, I don’t have a firm answer for you. I recommend asking a real estate lawyer for more information in this situation. Best of luck!

  2. Joretta Fullington says

    Just received an escrow overpayment and changed to a lower insurance company, which is a Nationwide company, Farmers! I received from my old home insurance a check for over $700. I’m trying to figure how much to pay to the mortgage. All of the extra? We could really use some home repairs!

    • Ryan Guina says

      Joretta, I would contact your mortgage company and escrow compamny to determine what your new mortgage payment should be. If the $700 is simply a refund from your escrow account and you have the choice to use it as you please, then there is no need to make an extra mortgage payment. Using it on home repairs would be a good use for it. Where you want to be careful is with your new mortgage payment – sometimes the escrow amount gets messed up when insurance companies are changed. You want to contact your escrow company to ensure you won’t go into arrears. Otherwise they may increase your mortgage payment to make up the shortage.

  3. Joretta Fullington says

    Ryan,
    Thank you for your prompt response. I was going to try to crunch some numbers on the breakdown on the Mortgage breakdown, but I believe the your right and the best thing to do, is to call the Mortgage company and find out for sure!

    Sincerely and GOD Bless you and your Family,
    Joretta

  4. Brian M. says

    Hi Ryan. I closed on my 1st & current home in September 2016. As a 100% disabled veteran in Oklahoma, I’m also exempt from paying property taxes & PMI as my (fixed rate) loan is a VA loan initially financed through Great Plains Bank, in which I was required to setup an escrow at the time with escrow still in place. In the Spring of 2017, my mortgage loan servicing was transferred to Pacific Union Financial (still with escrow) until January 31, 2019 it has been once again transferred to now Mr. COOPER (formerly Nationstar Mortgage), and since 2016 I’ve seen my mortgage pymt steadily increase from est. $1153 (yr 1) to now $1308. So, I’m concerned about even having an escrow anymore when my Hmeownrs & Auto insurance thru USAA and without ever paying PMI & Prop Taxes due to exemption & fixed low rate, wouldn’t it make sense for my mortgage pymt to not continue to increase so much as it has to this point? I get that economy changes & other variables, impact homeowners insurance rates but it just seems that the 1/12 of items usually paid for thru escrow by most ppl, I don’t have. Does not a hefty total of what I’ve paid in escrow not due back to me (surplus) if I’m being charged for pmi & property taxes thru escrow? Sorry this is so long of a message, but just rly concerned about saving more $$$. Thanks!

    • Ryan Guina says

      Hello Bryan, each mortgage situation is unique. It’s not uncommon for your mortgage payment to fluctuate the first few years, especially on a newly built home or when property taxes have increased or decreased. You can and should work with your lender to discuss the payment increases and ask if there is anything you can do on your end to mitigate these changes or prevent them in the future. For example, my payment was shceduled to significantly increase due to an underfunded escrow account. I contacted my mortgage company and they gave me the option of pre-funding a portion of the escrow account, or making larger payments over the upcoming year. I chose the latter option, as the slightly bigger payments didn’t hurt my cashflow or budget. My payments decreased again after that year had passed and my escrow account was back at normal levels. Over time, things should even out. But the best place to start is with your mortgage or escrow company. Best of luck!

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