Can My Monthly Mortgage Payment Ever Change?

Once you close on your loan, you’ll start making monthly mortgage payments to your lender or servicer. Your payment should be the same throughout the life of your loan (assuming you have a fixed-rate mortgage). However, depending on your loan type and a few other variables, there might be some fluctuation in your statement. 

What's in a Monthly Mortgage Payment? 

Your monthly mortgage payment includes more than just the price of your home. Principal, interest, taxes, and insurance (PITI) make up your monthly payment. 

The principal is the amount you borrow, and interest is the fee you pay for using your loan, expressed as a percentage – 6.0% etc.  Taxes, specifically property taxes, are charged for real estate property (like the house, building, or land itself), and are determined by your local government. Insurance includes your homeowners insurance, private mortgage insurance (PMI) if it’s required, and any supplemental insurance, like flood insurance, if it applies to your property. Insurance protects both you and your lender from potential losses. 

What Could Cause my Payment to Change? 

Your payment went up this month? Here are a few possibilities as to why: 

Your property taxes changed. Property taxes can fluctuate based on your local government’s decisions. 

Additionally, your property value is annually assessed. Property value assessment requirements vary based on the area you live in, so check with your local Property Valuation Administrator (PVA) office for the specifics in your area. 

Your insurance changed. We already learned that there are three different types of insurance you may be required to pay: homeowners insurance, private mortgage insurance (PMI), and supplemental insurance (flood, etc.). While you may not have PMI and supplemental insurance, homeowners insurance is required. Most lenders have you pay insurance through an escrow account, similarly to how you pay your taxes. If you change your homeowners insurance – for example, you change providers – your premiums might change, causing a shortage in your escrow account. Your mortgage payments may go up to cover the difference. Or, your premium might go down, which could lower the amount you owe each month in insurance, potentially decreasing your monthly mortgage payment. 

Bye-bye, PMI! 

Similarly, if you have a Conventional mortgage with PMI, but are approaching 78% of your home’s original value, your PMI is automatically canceled, lowering your monthly mortgage payment. Your original mortgage paperwork will show the date when this will occur, or ask your Mortgage Banker about refinancing to remove the PMI earlier if you’ve paid your loan down to 80%, or your home’s value has increased significantly. 

You have an adjustable-rate mortgage (ARM). If you have an adjustable-rate mortgage (ARM), your mortgage payment might go up or down. One of the selling points of an ARM is that the interest rate is usually lower during the initial interest rate period than they are with a fixed-rate mortgage. After the initial interest rate period, however, the rate may change based on predetermined intervals. 

Your loan has special circumstances. If you have a temporary buydown, your monthly payment will go up because your interest rate increases by a percentage of the original rate after a year(s). For example, for a 2/1 buydown, you’ll have a 2% lower interest rate for the first year of your mortgage, then 1% lower in the second year, followed by the original rate for the rest of the loan’s term. 

Construction loans can also mean fluctuating payments as the principal changes according to disbursements made while your home is built. Or maybe you’re a home “flipper” and have chosen an interest-only (IO) mortgage to keep initial payments low. Your payments will go up when the IO period ends, typically after 10 years, unless you sell or renegotiate the terms.  

Keep an Eye on Your Statements 

It’s always a good idea to monitor your monthly mortgage payments, even if you have them auto-drafted from your bank account. This way you won’t encounter any unexpected surprises, and if there’s something you don’t understand, Atlantic Bay is here to help!