If you’re a homeowner, odds are you don’t enjoy sifting through your mail and coming across your mortgage bill every month. So just imagine your shock and dismay if you opened the envelop, only to discover that your payment has inexplicably gone up. Conversely, you’d probably get excited and shout “woohoo!” if your payment went down, right?
There are several reasons why a monthly mortgage payment might change, and some homeowners might get confused when it happens. According to the Consumer Financial Protection Bureau, here are five common reasons your payment could go up or down:
1. You have an adjustable-rate mortgage (ARM) and the interest rate changed. Check the type of mortgage you have. Some homeowners believe they have a fixed-rate mortgage loan, when their loan actually includes an adjustable rate. Many ARMs will start at a lower interest rate than fixed-rate mortgages, but when this introductory period is over, the interest rate will change, and the monthly payment will likely to go up.
2. You have an interest-only or pay-option loan and you’re starting to pay principal. With these loans, you can postpone making principal payments for a while. That means that, for a period of time, you’re only paying off the interest that’s accumulating on the amount you borrowed to pay for your home. Eventually, you have to start paying principal, or the actual amount you owe on the home, and that’ll make your monthly payments go up.
3. You have an escrow account to pay for property taxes or homeowners insurance and those expenses changed. With an escrow account, you pay certain property-related costs through your lender or servicer, little by little every month, instead of getting a big bill once or twice a year. Your property taxes and insurance premiums can fluctuate, and if they do, your monthly mortgage payment will change accordingly.
4. You were charged new fees. Your mortgage servicer may have charged you fees that increased your monthly payment. Check your monthly mortgage statement or any correspondence you recently received from your lender or servicer.
5. It’s also possible that your servicer simply made a mistake. If you think your servicer made a mistake, call the company to check and request a corrected statement. If your servicer doesn’t fix the problem over the phone, send a notice of error to the company explaining why you think it made a mistake in calculating your loan payment. Make sure you send the letter to the address your servicer uses for errors and information requests. This address should be listed on your statement or the servicer’s website–it might be different from the address where you send your payments.
These and several other reasons can cause your monthly mortgage payment to go up or down. You may receive a notice before changes occur, and make sure to check your billing statement for an explanation. If you still don’t understand changes to your payments, or you suspect an error, call your mortgage servicer immediately.