Is Your Mortgage Payment Increasing? Here’s What You Need to Know About Insurance and Escrow

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Is Your Mortgage Payment Increasing? Here’s What You Need to Know About Insurance and Escrow

By: Emmerson Reynolds & Ryan Reynolds

Is your mortgage payment increasingHave you recently received a letter from your mortgage company saying your house payment is going up, and they’re blaming your insurance? If this sounds familiar, don’t panic, you’re not alone.

Let’s break down the reasons why your mortgage payment can go up, how insurance plays a role in this, and why it might not be the only factor at play. Let’s clear things up so you know exactly what’s going on.

The Basics of Escrow Accounts

When you purchase a home, your lender often will set up something called an escrow account. For many banks, if you do not put down at least 20% on your house, this escrow account becomes mandatory. Each month, a portion of your mortgage payment goes into that escrow account. Over time, this money accumulates and is used to pay two significant expenses on your behalf:

  1. Homeowners insurance premiums
  2. Property taxes

But here’s the kicker: If either your homeowner’s insurance or property taxes increase, your mortgage payment will likely go up too. Let’s break that down further, too.

Why Your Mortgage Payment Might Increase

When your lender initially sets up your escrow account, they try to estimate what your insurance and tax bills will look like for the year. After, they divide those costs across your monthly mortgage payments. But sometimes, those estimates do not match reality.

  1. Homeowners Insurance Increases 

Insurance companies can raise your premiums for several reasons. It could be due to changes in the housing market, increases in repair costs, or, since you live in Texas, maybe natural disasters have raised overall risk levels. When your insurance premium goes up, your mortgage company has to adjust the escrow amount to make sure there is enough in the account to cover it.

  1. Property Taxes Increase

Local governments will adjust property taxes based on how property values and new tax assessments may change. So, if your county or city raises its tax rates, your property tax bill could rise. Again, this would trigger a higher escrow contribution from your monthly payments, resulting in your mortgage rising.

Now let’s zoom in on the insurance side for a second.

Home insurance rates have been going up for a few reasons:

  • Inflation: It costs more to rebuild or repair homes now than it did just a couple of years ago. Just like the cost of milk, eggs, and everyday living expenses have gone up, your insurance goes up to cover the increased cost of things like lumber, nails, labor, roofing materials etc.
  • Weather: Big storms, freezes, wildfires… those risks drive rates up, and we’ve had a lot of them.
  • Claims in your area: Even if you’ve never filed a claim, your zip code plays a role.
  • Carrier changes: Some companies are pulling out of certain areas or raising rates to stay profitable.

So even if you haven’t changed anything, your insurer may still raise your premium, and that extra cost gets passed right into your escrow account.

Escrow Shortages 

An escrow shortage happens when your mortgage company hasn’t collected enough money in the past to cover higher insurance premiums or property taxes.

For example, if your insurance premium increased by $600 a year (or $50 per month), but they didn’t collect enough last year, they’ll raise your payment not only to cover the new premium but also to make up the difference.

This can cause your payment to go up more than expected, because it’s not just about covering the new costs, but about catching up on the shortage from the previous year.

So What Can I Do?

  1. Review your insurance policy: Are you over-insured? Do you have the right deductibles? We can help walk you through it. Remember, increasing your deductible can lower your payment.
  2. Shop around: Rates vary from company to company. Don’t assume your current carrier is still the best deal. Make sure you are working with an independent agent because they can shop a lot of companies, whereas captive agents like State Farm, Farmers, and Allstate agents can only shop the one company they work for. Choice is your friend here.
  3. Look into bundling: If you haven’t bundled your home and auto, you might be missing out on some big discounts.
  4. Talk to your lender: Some mortgage companies let you pay the shortage as a one-time payment, so your monthly amount doesn’t jump as much.

Don’t Wait- Take Action Early

Don’t wait for your lender’s letter to find out your insurance went up. Instead, reach out to your independent agent 30-60 days before your renewal. We can review your policy and premium early, helping you make adjustments before it impacts your escrow.

At the end of the day, your mortgage payment can go up for a few reasons, whether that is home insurance, property taxes, or both. The good news? You’re not stuck. With the right team behind you, you can review your options, lower your premium, and avoid unexpected surprises.

So if you’ve gotten that letter, or you just want to get ahead of the curve, give us a call. We’ll take a look and help you make sense of what’s going on.