You may be surprised to know that your mortgage payments can fluctuate, even if you have a fixed interest rate. Although it may be jarring at first glance, this is more common than you may think. Mortgage payments can go up and down throughout the life of your loan for a few reasons, particularly if there are adjustments to factors coupled with your monthly payment. Let’s dive into them below.
Can my monthly mortgage payment go up?
Yes, your monthly mortgage payments can go up. For example, if you have an adjustable-rate mortgage, your mortgage payments can go up with each adjustment period (typically annually). If you have a fixed-rate mortgage, you may still see an increase in your monthly mortgage payments due to several common factors.
Note that some of the following factors are often coupled with your mortgage payments or taken out of an escrow account on a monthly basis.
1. Property taxes and property reassessment
Your property taxes can increase based on your home’s market value. For example, home renovation projects that expand square footage can increase your property's value and then increase your property taxes. The property taxes you pay can also increase due to a change in tax rates at local or state municipalities.
A property reassessment is done by your local municipality to ensure people are paying property taxes that are accurate and fair. In some cases, homeowners may order a reassessment from their municipality themselves, although these are typically performed annually. The assessor reviews properties in the community and takes a holistic look at the market. This could determine that your home has increased in value, which may result in an increase in your property taxes and therefore your mortgage payments.
2. Homeowners insurance
Taking out a mortgage means you’re typically required to have a homeowners insurance policy. Homeowners insurance payments are typically coupled with your monthly mortgage payment — so if the cost of your insurance policy goes up, then it may seem that your monthly mortgage payment has gone up. Your insurance company might raise rates due to inflation, as well as costly or more frequent claims (like severe weather events). In this scenario, it’s not that your mortgage itself has increased but that associated homeownership costs have gone up.
4. Tax exemptions
Property tax exemptions may reduce your tax rate. Your qualifications for certain exemptions may vary depending on the year. Some years you may not qualify, and as a result, you may notice an increase in your monthly mortgage payments.
Can my monthly mortgage payment go down?
Yes — your monthly mortgage payment can go down based on some of the same factors that may cause them to rise. However, the details are a little different:
1. Property taxes
You could potentially see a decrease in property taxes if you have your home value reassessed and for various reasons — like market conditions or property depreciation — your home value has gone down.
2. Removal of homeowners insurance
If your homeowners insurance is removed, you may notice your monthly mortgage payment go down. You may have found a new premium elsewhere and see that your mortgage payments have gone down due to the price reduction.
3. Tax exemptions
As mentioned, your eligibility for tax exemptions can differ each year. You might find you qualify for a new exemption that makes your monthly payments go down; it would be best to consult a tax expert.
4. Mortgage insurance
Mortgage insurance, or private mortgage insurance (PMI), is often required by lenders to protect their investment if a borrower were to default on their loan. PMI is often required when a down payment is less than 20% but varies by mortgage type and lender. When you pay off a certain percentage of your mortgage, your lender may drop the mortgage insurance premium and your payment may go down. Do note that some mortgages never drop the PMI premium.
It’s common to see monthly mortgage payments fluctuate throughout the life of your loan due to changes in your home value, taxes or insurance. Noticing changes in your mortgage statements and investigating them can help you understand why your monthly payments went up (or down) and how you anticipate any changes in the future.