One of the first things anyone getting a mortgage wants to know is what their monthly payment will be. It can be a long process before you get that payment amount.
Once you get through one or both of those, you will have a better chance of getting officially approved for a home loan. Then you will need to find a lender and commit to a mortgage. Then, before you close on your home, your lender will send you documents that show you exactly how much you’ll need pay each month.
Typically the amount you will pay is pretty stable. However, it is possible that you will experience an increase in mortgage costs.
In this case you will wonder, why did my mortgage go up?
This article will answer that question, and provide possible explanations for why your mortgage has increased.
Why Did My Mortgage Go Up?
There are a couple of reasons why your monthly mortgage rates can increase. In a home loan, there are many things that you pay for that are rolled up in the amount you owe each month.
Let’s take a look at the common factors that contribute to an increase in your mortgage rate. They are as follows:
- Interest rates
To purchase a mortgage rate, you can choose between a fixed-rate mortgage or an adjustable-rate mortgage. With a fixed-rate mortgage, your interests and principal payment will remain the same.
However, in adjustable-rate mortgages, the amount of interest you pay for changes. So if you have an adjustable-rate mortgage, your rates can go up due to the terms of your loan and/or changes in interest rates.
- You have an interest-only or pay-option mortgage loan
These loans are ones where, for a set period of time, you only pay the interest on your mortgage each month. While you are only paying your interest, your rates may stay fairly low. However, at some point, you will need to start paying for the principal amount of your mortgage. When that happens, you will likely see a rise in your monthly payment amount.
- Escrow changes
First, what is an escrow account? This is essentially a savings account that is managed by your mortgage servicer. There are a few different types of costs that may go into your escrow account.
Payments that goes into an escrow account includes the following:
- Homeowners insurance
- Property taxes
- Private mortgage insurance or PMI
Both property taxes and homeowners insurance premiums are adjustable. So if either one of them (or both of them) increase, you will see the amount you have to pay for your mortgage each month increase.
- Charged with new fees
It is also possible for you to be charged with new fees which will increase your monthly payments. It is best to check your monthly mortgage statements from your lender.
Can my Mortgage Decrease?
The answer to this is yes. Not all changes result in an increase. Your monthly mortgage payments may also decrease over time.
Here are scenarios where your mortgage payments go down:
- Your interest rates went down
Interest rates can go up or down. So if your mortgage rate is tied to the current interest rates, you can see your payments drop when interest rates drop.
- Mortgage insurance removal
Mortgage insurance, or PMI, is for those who paid less than 20 percent in their down payment. It is an additional payment made by the borrower in order to protect the lender.
If your mortgage insurance either meets a certain amount of equity or has been paid for a certain amount of time, you may be able to stop paying it.
And there you have it! We hope this article provided possible reasons why your mortgage increased and gave you a better idea about changes in mortgage rates.