Introduction
If you’ve noticed that your mortgage payment is going up, you may be wondering why this is happening. Understanding the factors that can cause an increase in your mortgage payment is essential for homeowners. In this article, we will explore some of the common reasons why mortgage payments can go up and provide you with a comprehensive explanation.
Adjustable-Rate Mortgage (ARM) Adjustment
What is an Adjustable-Rate Mortgage (ARM): An Adjustable-Rate Mortgage (ARM) is a type of mortgage loan where the interest rate can change periodically. These changes are typically based on a specific financial index, such as the U.S. Prime Rate or the London Interbank Offered Rate (LIBOR).
Interest Rate Changes: One of the primary reasons why your mortgage payment may increase is if you have an ARM, and the interest rate adjusts. If the interest rate goes up, your monthly payment will increase to reflect the higher rate. It’s important to review the terms of your ARM to understand how often the rate can adjust and the potential impact on your payment.
Escrow Account Adjustments
What is an Escrow Account: An escrow account is a separate account held by your mortgage lender to pay for property taxes, homeowners insurance, and other related expenses.
Property Tax Changes: Your mortgage payment may go up if there is an increase in your property taxes. Property taxes can change due to reassessments by local authorities or changes in tax rates. If your property taxes increase, your lender will adjust your monthly payment to ensure there are enough funds in your escrow account to cover the higher tax amount.
Insurance Premium Changes: Similarly, changes in your homeowners insurance premium can also impact your mortgage payment. If your insurance premium increases, your lender will adjust your monthly payment to accommodate the higher cost.
Private Mortgage Insurance (PMI) Changes
What is Private Mortgage Insurance (PMI): Private Mortgage Insurance (PMI) is typically required for borrowers who make a down payment of less than 20% on their home purchase.
Loan-to-Value Ratio: PMI premiums are based on the loan-to-value ratio (LTV) of your mortgage. As you pay down your mortgage balance and build equity in your home, your LTV ratio decreases. Once your LTV ratio reaches 80%, you may be eligible to cancel your PMI. However, until that point, any changes in your PMI premium will affect your mortgage payment.
Conclusion
In summary, there are several reasons why your mortgage payment may be going up. These include adjustments to your adjustable-rate mortgage, changes in property taxes or homeowners insurance premiums, and fluctuations in private mortgage insurance premiums. It’s important to review your mortgage terms and understand the factors that can impact your payment. If you have any concerns or questions, it’s recommended to reach out to your mortgage lender for clarification.
References
– Investopedia: www.investopedia.com/mortgage/adjustable-rate-mortgage-arm/
– The Balance: www.thebalance.com/what-is-an-escrow-account-315346
– Consumer Financial Protection Bureau: www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/
– Bankrate: www.bankrate.com/mortgages/how-to-get-rid-of-private-mortgage-insurance/
