It surprises many homeowners: you have a fixed-rate loan, yet your monthly payment just went up. The rate did not change, but the other parts of your payment did. Almost always, the culprit is your escrow account absorbing higher taxes or insurance. Here is how it works.

Why does a fixed-rate payment change?

Your monthly payment usually has four parts: principal, interest, property taxes, and homeowners insurance, often abbreviated PITI. A fixed rate locks the principal and interest, but taxes and insurance are not fixed. When those rise, the escrow portion of your payment rises with them, increasing your total even though your rate never moved.

How do property taxes affect your payment?

Local governments reassess property values and adjust tax rates periodically. When your assessed value or the local millage rate goes up, your annual tax bill grows. Because your servicer collects that bill monthly through escrow, a tax increase flows straight into a higher mortgage payment at your next escrow analysis.

What is an escrow shortage?

Each year the servicer runs an escrow analysis to compare what it collected against what it actually paid for taxes and insurance. If those bills came in higher than projected, your escrow account runs short. To fix it, the servicer raises your monthly payment to both cover the new, higher bills going forward and repay the shortage, which is why the jump can feel larger than expected.

What can you do about a rising payment?

Start by reading your escrow analysis statement, which itemizes the change. If your property assessment seems too high, you may be able to appeal it. Shopping your homeowners insurance can lower that premium. You can sometimes pay a shortage in a lump sum to avoid spreading it into your monthly payment. And confirm you are receiving any homestead or senior tax exemptions you qualify for.

Frequently Asked Questions

Can my mortgage payment go up every year?

The principal and interest on a fixed loan will not, but the escrow portion can adjust yearly based on your actual tax and insurance costs. In areas with rising values and premiums, small annual increases are common.

Why did my payment go up if I have a fixed rate?

Because taxes and insurance are not fixed. When they increase, your escrow collection rises and your total payment goes up, even though the interest rate is unchanged.

Can I remove escrow to control my payment?

Some borrowers with enough equity can waive escrow and pay taxes and insurance themselves, but then you are responsible for budgeting those large bills. It changes who manages the payments, not the underlying cost.

Related Reading

• What Is an Escrow Account?
• Homeowners Insurance and Your Mortgage
• How to Lower Your Monthly Mortgage Payment

Working through this in Colorado? I’m David Silva, a mortgage loan officer based in Westminster, CO (NMLS 1352284), licensed in Colorado, California, Georgia and Texas. Take a look at the All In One Loan or all loan programs — or send me your scenario and I’ll tell you straight whether it works.