Your Rate Is Fixed. Your Payment Isn't. The Part of Your Mortgage That's Up 22% in Two Years.

Why Did My Mortgage Payment Go Up?

Because the part of your payment that was never fixed went up. A fixed-rate mortgage locks the principal and interest. It doesn’t lock the property tax and homeowners insurance that your servicer collects alongside them each month and holds in an escrow account. Those two bills change every year, and the servicer only adjusts your payment once a year, after it compares what it collected with what it paid.

The loans AmeriSave closed over the past two years show which bill did the moving. Homeowners insurance inside the escrow payment rose 22.3% over two years. Property tax rose 0.8% over the same two years. The whole escrow line rose 11.9%. Insurance did almost all of it.

Figure 1 puts the two numbers side by side.

The past year softened a little. Insurance rose 3.8% over the past year, and property tax rose 6.3%, so the tax line is now the faster mover. Together they pushed the typical monthly escrow payment from $349.82 to $371.39, up $21.57 a month, about $259 a year. Ten quarters ago, insurance was about 39% of the typical escrow payment. Today it’s about 45%.

Figure 2 shows the year-over-year change for both lines by quarter. Insurance peaked at +17.8% a year ago and has slowed to +3.8%, while property tax went from falling to rising 6.3%.

Table 1 shows the national medians behind those lines.

After three decades in mortgage finance, my read is that the insurance shock is over as a rate of change and the property tax catch-up is next. Assessments trail home prices by one to three years in most places, which is my professional observation rather than a cited statistic. Home values in the data rose 5.7% over the past year, and the tax bills that follow those values haven’t fully arrived.

The Homeowner Who Opened the Letter

Picture a homeowner in the middle of the data. The house appraised at about $319,000. The loan is about $195,000 on a fixed rate. The payment has three parts: principal and interest, which never change, and tax and insurance, which the servicer collects at about $371 a month.

In the spring the insurer renews the policy at a higher premium. The servicer keeps collecting the old amount, so the escrow account runs short. Months later the annual escrow analysis arrives in an envelope that looks like every other statement. It says two things. The account came up short, and the collection going forward has to be higher. The new payment carries both: the catch-up and the higher go-forward amount, in a single step.

Federal escrow rules give the homeowner a choice on the shortage. A small one can be paid within 30 days or spread over twelve months. A larger one must be offered over at least twelve months. Either way, the higher collection stays, because next year's bills are higher.

Then the homeowner does what almost everyone does. They look at the rate, which they cannot change, and they ignore the two lines that keep moving, which they never shop.

Run the Numbers on the Typical House

Take the house in the middle of the data: appraised at $318,850, with a loan of $195,360 and a fixed rate. Last year the servicer collected $349.82 a month for taxes and insurance. This year's bills work out to $371.39 a month. The account came up $21.57 short every month, so the shortage at the annual review is about $259.

Here is what the review letter does with that. The go-forward collection rises to the new $371.39. The $259 shortage is spread over the next twelve months, about $21.57 a month. For one year the escrow line rises by roughly $43 a month, then drops back to the $21.57 increase once the catch-up is paid. Table 3 lays it out.

Save Every Month With A Refinance

Lower your rate and put more cash in your pocket each month.

Lower My Rate

Two rules of thumb fall out of the data. First, escrow runs about $116 a month for every $100,000 of home value nationally, so a $400,000 house carries roughly $464 a month before principal and interest. Second, taxes and insurance together run about 1.44% of home value a year nationally, which is where the "budget 1.5%" advice comes from. On the typical $318,850 house that’s about $4,600 a year. In Illinois, the heaviest published state at 2.51%, the same house would carry about $8,000 a year, or $667 a month.

Now the lever. On the typical $195,360 loan, each half-point reduction in rate lowers principal and interest by roughly $60 to $65 a month in the rate range borrowers have seen over the past two years. That single move covers the $43 catch-up year with room to spare and keeps paying after the catch-up ends. This is an illustration of payment arithmetic, not an offer, and the result depends on the rate you hold today.

What to Check Tonight

Pull the escrow analysis letter and read the two numbers separately: the shortage and the new monthly collection. One is a one-time catch-up. The other is permanent until the next review.

Pull the insurance declarations page and find the renewal date. The premium is the one escrow line you can change with a phone call. Get competing quotes four to six weeks before renewal, match the coverage and the deductible so the comparison is fair, and get the lower policy on file before the servicer runs its analysis. A premium that drops after the analysis won’t lower your payment until the next cycle.

Then do the arithmetic on the biggest line. On a loan the size of the typical one in the data, about $195,000, each half-point reduction in rate lowers principal and interest by roughly $60 to $65 a month in the rate range borrowers have seen over the past two years. That’s about three times the past year's escrow increase. This is an illustration, not an offer, and whether the number works depends on the rate you hold today.

Table 2 shows the states where the escrow payment rose most over the past year. If you live in one of them, the letter has probably already arrived.

• The full report behind these numbers, “Homeowners Insurance Now Costs More Than Property Tax in 12 States, and It Is,” has the state-by-state table.

Methodology

The figures come from AmeriSave first mortgages that funded with an escrow account: cash-out refinances, rate-and-term refinances, and purchases. The comparison is the third quarter of this year against the same quarter one and two years earlier. Each figure is a median across the loans that closed in that quarter, not the same homeowners' bills tracked over time, so part of any change is who refinanced rather than what insurers and assessors did. Mortgage insurance and HOA dues are excluded. Data through October 27.

The Bottom Line

Your rate is fixed. Your payment is not. The insurance inside it rose 22.3% in two years, the tax line is catching up now, and the servicer will tell you once a year, after the fact. Budget about 1.5% of home value a year for taxes and insurance, shop the policy before every escrow review, and run a rate check against your current loan before the next letter arrives. If the number works, AmeriSave's rate-and-term refinance is the lever large enough to absorb what the other two lines keep adding.