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Finding the right kind of mortgage in this market can be a really difficult job. Most people try to avoid adjustable rate mortgages, because in that case your payment may increase from time to time. But even if you succeed in finding a fixed rate mortgage, there is a high chance that the fixed monthly payment may increase. The main reason behind such hike is your escrow account.
Escrow Account: In case your borrowings exceed 80 percent of the total value of the property, then you will be asked to open an escrow account by your lender for your own benefit. Apart from the fixed payment every month, you also have to pay your lender property taxes, insurance and other expenses that are necessary. All these expenses are deposited into your escrow account and gets broken down into monthly payments. Thus, it becomes much easier for you to pay. You don’t have to pay a lump sum amount of money at once.
The reasons behind the increase in mortgage payment are:
1. Property taxes: Property tax is the main reason behind the increase in the fixed monthly mortgage. They can fluctuate very frequently, especially if you live in a posh location. Increase in the property value, change in the tax structure of the government or home improvements can end up increasing your monthly payment.
2. When these rates increase, lenders are also forced to collect more money in your escrow account to cover up all the additional costs. As a result, your monthly mortgage increases. You have the option to file an appeal against the increase in property taxes. But there is no guarantee that the ruling will be in your favor.
3. Homeowners insurance: Just like property taxes, homeowners insurance can also end up increasing your monthly mortgage. If you are investing in a large remodel project, then there are many extra costs like repairing expenses or some additional constructions. As a result, the homeowners insurance cost will rise, which in turn will result in the increase of your monthly mortgage.
Lender error: Sometimes, your lender may by mistake make some wrong calculations in calculating the property tax or insurance amount. This means that you will have to pay more in your escrow account to cover up the costs. Although such mistakes are completely unintentional, but you are the one who will suffer. You will have to end up paying an increased monthly mortgage. Hence, it is your responsibility to make sure that all the costs are properly calculated.
Hence, it is very important that you shop for your mortgage very carefully. Jerry Stiles, mortgage broker can help you out in this regard.