See why the monthly amount due might change for a home loan.

You just received a notice from your home lender that says your monthly payment changed and you’re puzzled: why would it change? There are several reason a mortgage payment account may be adjusted. Let’s take a look.

To keep escrow current

Many borrowers pay into escrow accounts when they make monthly mortgage payments. The escrow funds are collected by the lender to pay things like property taxes and homeowners insurance. One-twelfth of the annual amount for these expenses are collected each month. The lender then pays the bills when they are due. When there’s a change in property taxes or insurance premiums, the lender adjusts the amount held in escrow to ensure enough money is available when bills are due.

The type of home loan may affect the amount due

Homeowners with a fixed-rate home loan pay the same amount towards principal and interest for the life of the loan. Those with adjustable rate mortgages (ARMs) or interest-only payment options will see monthly payments change when interest rates change.

Also, if your home loan came with temporary buydown that allows for a lower payment in exchange for up-front costs, there will be an increase in the payment amount when the buydown period expires. Usually this is within one to three years of the loan’s start.

PMI is no longer needed

Private mortgage insurance is frequently charged when home buyers make a downpayment of less than 20%. Once their home equity rises above 20%, PMI can be dropped. (If your lender doesn’t automatically drop PMI when you reach the 20% threshold, you can request that it be removed so you can save money.)

Other reasons a mortgage payment might change

Changes in escrow, interest and PMI aren’t the only reasons a monthly mortgage could go up or down. The lender may have added fees or there could be a mistake.

If there’s a mistake, talk to you lender right away. Ask for a reference number and keep notes on your conversations, including the date, who you spoke with and what you talked about. Also, ask for a corrected statement. If the matter isn’t cleared up with phone calls, notify the lender in writing with a notice of error.

We’re here to help

Consumers does everything we can to ensure members understand the ins and outs of their home loans. If you have questions about mortgages—or anything else related to banking—call us at 800.991.2221.

 

 All loans subject to approval. Rates, terms, and conditions are subject to change may vary based on credit worthiness, qualifications, and collateral conditions.