Your payment rises because of escrow and property taxes, not because your loan balance grew
Your mortgage payment has two parts: principal and interest (the money that actually pays down your loan), and escrow (a holding account your lender manages for taxes and insurance). When your property taxes go up or your homeowners insurance renews at a higher rate, your lender increases the escrow portion of your payment. The principal and interest part stays locked in for the life of your loan—that does not change. But escrow can shift every year, sometimes by $50 a month, sometimes by $200 or more.
Property tax assessments happen on a schedule that varies by county—some reassess every year, others every three to five years. When your county reassesses and raises your home's value, your tax bill rises, and so does your monthly escrow payment. Insurance companies also raise rates regularly, especially after claims or when they recalculate risk in your area. Both of these are outside your lender's control, but they flow directly into your mortgage bill.
If you do not have an escrow account—if you pay taxes and insurance yourself—your payment should stay the same. But if your lender requires escrow (most do for loans with less than 20 percent down), you will see these increases reflected in your statement every time the lender recalculates what you owe.
Key Takeaways
- Your principal and interest payment is fixed for the life of your loan and does not increase, but escrow—the account that holds money for taxes and insurance—adjusts annually.
- Property tax increases are the most common reason escrow payments rise, and they happen on a schedule set by your county, not your lender.
- Homeowners insurance rate increases also flow into your escrow payment, and insurers raise rates based on claims history and regional risk.
- Your mortgage statement should break down the principal, interest, and escrow portions separately so you can see which part increased.
- If you own your home outright or have paid down your loan enough to drop escrow, you can pay taxes and insurance yourself and avoid these automatic increases.
How escrow works and why it changes every year
When you close on a mortgage, your lender sets up an escrow account and estimates how much you will owe in property taxes and homeowners insurance over the next year. They divide that total by 12 and add it to your monthly payment. You are not paying the taxes and insurance directly—you are paying the lender, who holds the money and pays the bills on your behalf when they come due.
Once a year, usually in the fall or winter, your lender recalculates. They look at what your actual taxes and insurance cost in the past year and what they expect to cost in the coming year. If the total is higher than what you have been paying, they raise your monthly escrow payment. If it is lower, they lower it (though this is less common). This recalculation is called an escrow analysis, and your lender is required to send you a statement showing the math.
The escrow account itself does not earn interest, so the lender is holding your money interest-free. If there is a surplus at the end of the year—you paid more than the actual bills—the lender either credits it to your next payment or sends you a check, depending on the amount and your state's rules.
Property tax increases and reassessment cycles
Property taxes are set by your county or municipality and are based on your home's assessed value. Most counties reassess homes on a fixed schedule: some every year, some every three years, some every five years. When your home is reassessed and the value goes up, your tax bill goes up, and your escrow payment follows.
You can find your county's reassessment schedule by searching "[your county] property tax assessment schedule" or calling your county assessor's office. The assessor's office also publishes the assessed value of your home, which you can look up online in most places. If you believe your assessment is too high, you can file an appeal—the process and important date vary by county, but you usually have 30 to 60 days after the notice.
In some states, there are caps on how much your tax can increase in a single year, even if your home's value jumps. California's Proposition 13, for example, limits increases to 2 percent per year unless the home changes ownership. Check your state's tax rules to see if a cap applies to you.
Homeowners insurance rate increases
Insurance companies raise rates for many reasons: claims you have filed, weather events in your area, inflation in construction costs, or straightforward because the insurer is recalculating risk. Unlike property taxes, which are public and set by government, insurance rates are set by private companies and can vary widely between insurers.
Your lender requires you to carry homeowners insurance as a condition of the loan, but you can shop for a new policy every year or every few years. If your current insurer raises your rate significantly, you can get quotes from other companies and switch. When you switch, your new insurer sends proof of coverage to your lender, and your lender updates your escrow account to reflect the new premium.
Some insurers offer discounts for bundling (home and auto), installing security systems, or maintaining a claims-free history. If your rate has jumped, ask your current insurer what discounts you might may have access to for before you switch.
Reading your escrow statement and spotting errors
Your lender must send you an escrow statement at least once a year, usually after the analysis. The statement shows what you paid into escrow over the past year, what the actual bills were, and what your new monthly payment will be. It breaks down taxes and insurance separately so you can see which one increased.
Check the statement against your actual tax bill and insurance declarations page. If the lender's numbers do not match what you received from the county or your insurer, contact your lender and ask for a correction. Errors happen—a lender might use an old tax amount or an old insurance quote—and they can be fixed.
If your escrow payment is increasing by more than 10 or 15 percent, ask your lender to explain the increase in writing. They are required to do so. If the increase seems unreasonable, you can request that they recalculate or you can dispute it through your state's banking regulator.
When principal and interest actually do increase
If you have an adjustable-rate mortgage (ARM), your interest rate can change after an initial fixed period, usually after 3, 5, 7, or 10 years. When the rate adjusts, your principal and interest payment increases, on top of any escrow increase. ARMs are less common now than they were before 2008, but they still exist.
If you took out an ARM, your loan documents spell out when the rate adjusts, what index it is tied to (usually the prime rate or SOFR), and what the cap is on how much it can increase. You should have received this information at closing. If you are not sure whether you have an ARM, check your loan estimate or promissory note, or call your lender and ask.
If you have a fixed-rate mortgage—the most common type—your interest rate and principal payment never change. Only escrow moves.
Options if your payment has become unaffordable
If your escrow payment has risen so much that your total mortgage payment is now unaffordable, you have a few options. The first is to refinance into a new loan with a lower rate, which would lower your principal and interest payment (though you would still have escrow). Refinancing costs money upfront and takes time, so it only makes sense if rates have dropped significantly or if you plan to stay in the home for several more years.
The second option is to pay your property taxes and homeowners insurance yourself instead of through escrow. To do this, you must ask your lender to remove escrow from your account. Most lenders will only do this if you have at least 20 percent equity in your home and a good payment history. Once escrow is removed, you are responsible for paying the county and your insurer directly, and you lose the protection of having the lender handle it—if you miss a payment, the consequences are on you.
The third option is to contact your lender and ask about a loan modification, which can sometimes lower your payment or extend your loan term. This is less common than refinancing and usually requires showing financial hardship, but it is worth asking about if you are struggling.
Frequently Asked Questions
Can I dispute my property tax assessment if I think it is too high?
Yes. Most counties allow you to file an appeal within 30 to 60 days of receiving the assessment notice. Contact your county assessor's office for the important date and process in your area. You will need to show evidence that your home is worth less than the assessed value—comparable sales, an appraisal, or photos of damage or needed repairs.
Why did my escrow payment go down one year and up the next?
This usually means your taxes or insurance costs fluctuated. If you filed an insurance claim, your premium may have jumped the following year. If your county reassessed your home, your taxes may have spiked. Conversely, if you switched to a cheaper insurance policy or your county lowered your assessment, escrow can drop. The lender recalculates every year based on actual costs.
What happens if I pay off my mortgage early?
When you pay off your loan, the lender closes the escrow account and refunds any surplus. You then become responsible for paying property taxes and homeowners insurance directly to the county and your insurer. Make sure you set up those payments yourself so you do not miss a important date.
Is there a way to lock in my escrow payment so it does not change?
No. Lenders are required by law to recalculate escrow annually based on actual and projected costs. You cannot lock it in, but you can reduce the underlying costs by lowering your insurance premium (shopping for a better rate) or appealing your property tax assessment.
How do I know if my lender made a mistake on my escrow statement?
Compare the lender's numbers to your actual property tax bill and insurance declarations page. If the amounts do not match, contact your lender in writing and ask for a correction. Lenders must respond within a set timeframe and recalculate if they made an error.