Your payment rose because of changes to property taxes, homeowners insurance, or both
Most mortgage payments include four parts: principal (the loan itself), interest, property taxes, and homeowners insurance. When your monthly payment increases, it is almost always because your property taxes or insurance costs went up, not because your loan terms changed. Your lender collects these amounts from you each month and holds them in an account called an escrow account, then pays the taxes and insurance bills on your behalf when they come due.
When your local government reassesses your home's value or raises the tax rate, or when your insurance company increases your premium, your lender recalculates how much you need to pay each month to cover those costs. You will receive a notice in the mail explaining the change — usually called an escrow analysis or mortgage statement adjustment — before the new payment takes effect.
Key Takeaways
- Property tax increases are the most common reason for payment increases, and they happen when your local government reassesses your home or raises tax rates.
- Homeowners insurance premiums can rise due to claims you have filed, damage in your area, inflation, or your insurer's decision to raise rates across the board.
- Your lender must send you a written notice explaining the change before your new payment begins.
- You can shop for a new insurance policy to lower that part of your payment, but you cannot avoid property taxes.
- If your escrow account has a large surplus or shortage, your lender may adjust your payment or require you to pay the difference in a lump sum.
How property tax increases affect your payment
Property taxes are set by your city or county and are based on the assessed value of your home. When the assessor's office reassesses your property — which happens on a schedule that varies by location, often every one to five years — they may assign it a higher value. Even if your home's value stays the same, your local government may raise the tax rate to fund schools, roads, or other services.
Your lender estimates how much you will owe in property taxes over the next year, divides that by 12, and adds that amount to your monthly payment. If your taxes go up, so does your monthly payment. You cannot avoid this increase, but you can sometimes challenge the assessed value of your home by filing an appeal with your assessor's office if you believe the valuation is wrong.
Why homeowners insurance premiums increase
Your insurance company can raise your premium for several reasons. If you filed a claim in the past year or two, your insurer may charge you more because they see you as higher risk. If your area experienced severe weather, flooding, or other damage, your insurer may raise rates across the board for all customers in that region. General inflation and rising construction costs also push insurance premiums up over time.
Some insurers straightforward decide to increase rates to improve their profit margins, and they notify customers that their premium is going up. Unlike property taxes, you have control over this part of your payment: you can shop for a new insurance policy with a different company. If you find a cheaper policy, you can switch, and your lender will adjust your monthly payment downward to reflect the lower insurance cost.
Understanding escrow analysis and the adjustment notice
Once a year, your lender performs an escrow analysis. They look at how much you paid into your escrow account over the past year, how much they actually paid out for taxes and insurance, and what they expect to pay in the coming year. Based on that calculation, they determine whether your monthly payment needs to go up, go down, or stay the same.
You will receive a written notice — sometimes called an escrow statement or mortgage statement adjustment — that shows the old payment amount, the new payment amount, and the date the change takes effect. This notice is required by federal law and must explain what caused the change. If you do not understand the notice, you can contact your lender's customer service line and ask them to walk you through the numbers.
When your escrow account has a surplus or shortage
If your lender paid out less in taxes and insurance than expected, your escrow account has a surplus. If they paid out more than expected, it has a shortage. Federal law allows your lender to handle these imbalances in different ways depending on the size and your state's rules.
A small surplus (usually under $50) may be refunded to you as a check. A small shortage may be added to your next payment or spread across several months. A large surplus or shortage may require you to pay a lump sum or receive a refund. Your escrow analysis notice will explain which option applies to you. If you disagree with the calculation, you have the right to request that your lender review it.
Steps to take if your payment increased unexpectedly
First, locate the notice your lender sent you. It should show the breakdown of your old and new payment and explain what changed. If you cannot find it, contact your lender and ask for an escrow analysis or mortgage statement adjustment notice.
Second, verify the numbers. Check your property tax bill to confirm the tax amount your lender is using. Call your homeowners insurance company and confirm your current premium. If the numbers in your lender's notice do not match your actual bills, contact your lender to report the discrepancy.
Third, if your insurance premium increased, get quotes from other insurance companies. You may be able to lower that part of your payment by switching to a cheaper policy. Your lender will accept any policy that meets your loan requirements.
What you cannot control and what you can
You cannot control property tax increases — they are set by your local government and you must pay them. You can challenge the assessed value of your home if you believe it is wrong, but this process takes time and does not always succeed.
You can control your insurance premium by shopping for a new policy. You can also reduce your insurance costs by increasing your deductible (the amount you pay out of pocket if you file a claim), bundling your homeowners and auto insurance with the same company, or asking your insurer about discounts for safety features like smoke detectors or security systems.
Frequently Asked Questions
Can my interest rate go up and cause my payment to increase?
If you have a fixed-rate mortgage, your interest rate cannot change — it stays the same for the life of the loan. If you have an adjustable-rate mortgage (ARM), your rate can change after the initial fixed period ends, which would increase your payment. Check your loan documents to see which type you have.
What if I think my property tax assessment is wrong?
You can file an appeal with your local assessor's office. The important date and process vary by location, but you typically have 30 to 60 days from the date you receive your assessment notice. Bring evidence that supports a lower value, such as recent appraisals or comparable home sales in your area.
Can I remove homeowners insurance from my mortgage payment?
No. Your lender requires you to carry homeowners insurance as a condition of the loan. However, you can shop for a cheaper policy and switch to it. Your lender will adjust your payment down to reflect the lower premium.
What is the difference between a surplus and a shortage?
A surplus means your lender collected more money from you than they needed to pay your taxes and insurance. A shortage means they collected less. Your lender will either refund a surplus to you or explore it to future payments, and they will ask you to cover a shortage through a lump sum payment or higher monthly payments.
How often does my lender recalculate my payment?
Your lender performs an escrow analysis at least once per year, usually around the anniversary of your loan closing. Some lenders do it more frequently. You will receive a notice each time your payment changes as a result of the analysis.