Why Did My Mortgage Go Up if I Have A Fixed Rate?

Fixed-rate mortgages are the most straightforward and predictable types of mortgages available. In fact, 89 percent of home loans in the United States are fixed-rate mortgages.

Regardless of the type of mortgage you choose, fixed-rate mortgages promise that your rate won’t change throughout the life of your loan.

However, sometimes your monthly mortgage payment still increases even though you have a fixed-rate mortgage. This article will discuss the various reasons why your mortgage may go up even though your home loan has a fixed interest rate.

Why Did My Mortgage Go Up if I Have A Fixed Rate?

It’s important to understand that various factors could cause your mortgage to go up despite your fixed interest rate. Here are some of the common reasons:

Escrow Adjustments

An escrow account is a separate account managed by the lender to collect funds for property taxes, homeowners insurance, and, in some cases, mortgage insurance. 

Each year, your lender will conduct an escrow analysis to determine if the funds in the account are sufficient to cover your upcoming tax and insurance payments. 

If there is a shortage in the account, your lender will adjust your monthly mortgage payment to ensure enough money is collected to cover these expenses.

Changes in Insurance Premiums

Private mortgage insurance (PMI) is an insurance premium assessed when the borrower makes a down payment of less than 20 percent. The cost of PMI varies based on factors like the loan-to-value ratio and the borrower's credit score. 

Over time, you may become eligible to have PMI removed as you pay down the mortgage balance and improve your credit score. However, if you're still required to pay PMI, the premiums may change annually, resulting in adjustments to your monthly mortgage payment.

If your home's value has increased significantly since you purchased it, consider requesting a new appraisal to demonstrate that your loan-to-value ratio is below 80%. 

If the value has indeed risen, you may be able to have the PMI removed, which would lower your monthly payment.

Homeowners Association (HOA) Fees

If your property is part of a homeowners association (HOA), you will be required to pay regular HOA fees to cover communal expenses and maintenance. 

HOA fees can vary over time due to changes in operating costs, community improvements, or reserve fund requirements. When HOA fees increase, your monthly mortgage payment, if managed through an escrow account, may increase to accommodate the higher dues.

HOA fees are typically beyond the lender's control, but they can impact the overall cost of homeownership. It's essential to be aware of any potential HOA fee increases and include them in your budgeting considerations when buying a property in an HOA-managed community.

Unpaid Property Taxes

Property taxes are assessed by local governments based on the value of your property and are used to fund local services and infrastructure.

If you fail to pay your property taxes on time, your lender might step in to cover the unpaid taxes to protect its investment in the property. This process is called "tax lien protection" or "tax lien payment," and it ensures that the property's tax obligations are met.

When the lender covers the unpaid taxes, they will add the amount to your outstanding loan balance and may also adjust your monthly mortgage payment to recover the cost of the taxes. 

The increase in your monthly payment will depend on the amount of unpaid taxes and how the lender spreads out the repayment over time.

» MORE: Learn More About Property Taxes

Other Reasons Why Your Mortgage May Go Up with a Fixed Rate

Adjustable-Rate Portion

Some mortgages have a hybrid structure, where the initial years have a fixed rate, and later, it switches to an adjustable rate. When the fixed-rate period ends and the interest rate becomes adjustable, your monthly payment could increase based on the prevailing interest rates at that time.

Late Fees and Penalties

If you miss a mortgage payment or incur other fees or penalties, these may be added to your next payment, increasing the total amount due.

Homeowners Association (HOA) Fees

If your property is part of a homeowners association, the HOA fees can increase over time, leading to higher monthly expenses.

Changes in Mortgage Terms

Though uncommon, some fixed-rate mortgages may have terms that allow the lender to change the loan's structure or terms, which could impact your monthly payment.

Loan Modifications

If you previously modified your loan due to financial hardship, the terms of your mortgage might have been adjusted, leading to changes in your monthly payment.

Overdue Payments

If you missed a payment in the past and are now catching up on the outstanding balance, the lender might require you to pay more each month to cover the arrears.

The Bottom Line

Homeownership offers one of the most reliable ways to build wealth and increase your overall net worth over time. However, it can be frustrating if your fixed-rate mortgage payment increases without any notice from your lender. 

We recommend contacting your loan officer or mortgage servicing department, as they can provide a precise answer on why your mortgage payment went up with your fixed rate.

» MORE: Pros and Cons of Adjustable Rate Mortgages (ARMs)