While being a homeowner can be wonderful, it’s no secret that homeownership comes with a not-so-fun part: mortgages. Unlike what many homeowners might believe, your mortgage payment isn’t always fixed. Variable expenses that are worked into your payment can either increase or decrease the monthly amount due.
Understanding the factors that can contribute to your mortgage going up will help you decide on the next best steps to lower your monthly payment.
What is a Mortgage?
A mortgage is an agreement between you and a lender that gives you the right to occupy a home. If you fail to repay your mortgage, the lender has the right to seize the property. Often, your monthly mortgage payments are made up of several different factors, including interest and escrow payments. The size of the loan, lender fees, interest rate, and loan term all affect your initial mortgage amount.
Why Did My Mortgage Go Up?
A mortgage payment isn’t always just principal and interest payments. In fact, there are different types of variable expenses that can impact your monthly payment, including:
Homeowner’s insurance is generally required for anyone with a mortgage. This insurance covers any loss or damage to your home from weather, accidents, and other events.
Your homeowner’s insurance premium is typically due once a year, but some homeowners choose to pay their premium through their escrow account. This allows you to split your yearly premium up into more manageable monthly payments that you send in as part of the mortgage payment. Depending on your policy terms, the monthly amount held in escrow can either increase or decrease yearly.
Property taxes are the amount you pay for residing in a particular city or area. Like homeowner’s insurance, property taxes are adjusted each year according to the municipality’s budget.
Additionally, the property taxes you pay are also based on your home’s value. If you make significant improvements, you might be required to pay higher taxes. Property taxes can also be held in escrow, with monthly payments added to your mortgage. If your property taxes increase, your monthly mortgage payment will as well.
Certain neighborhoods or condos have association dues, which is a pool of money used for the community’s good. Common examples of association dues uses include property maintenance, installing a new shared pool, and repaving the streets.
Typically, these association dues are not escrowed. But while they aren’t technically a part of your monthly mortgage payments, they are still a monthly cost associated with your home. If your dues go up, so does your monthly expenses.
What are Ways to Reduce Mortgage Payments?
The good news is that there are ways you can reduce your mortgage payments if the monthly amount becomes unmanageable. Consider the following options:
The first option you have is to refinance your current mortgage. Refinancing can cause your payments to drastically change based on your previous interest rate and loan balance. If you are able to refinance to a lower interest rate, you can significantly reduce your payments. Keep in mind that loan refinancing may extend the repayment period of your loan, but this can be a great option if your mortgage is becoming too expensive.
Remove Private Mortgage Insurance
Private mortgage insurance, known as PMI, is assessed when you put less than 20% down on your home. The amount you pay in private mortgage insurance is based on the loan amount, lender, and the amount you put down. PMI can be removed once you have at least 20% of the equity in your home.
If you made significant improvements, you could get your house reappraised. If the appraisal results in at least 20% equity in your home, you can have your lender remove the amount.
Additionally, if you have been making loan payments for a few years, you might own at least 20% of the house, allowing you to have this amount removed to reduce your monthly payment.
Attend Association Meetings
Again, association dues are usually not included in your monthly mortgage payments as they are not escrowed. However, if you have association dues and want to keep your monthly expenses down, attend your association’s meetings. By giving your input on costs incurred by the association, you may be able to lower the amount of money you have to pay every month. Also, consider joining the board of directors of your association to have a more significant impact. The decisions you vote on or decide can directly impact how much you are charged each month in dues.
One common reason why people choose to buy instead of rent is so they can have more control over how much they are spending on housing every month. However, just like rent, mortgage payments can go up.
Having your mortgage payments go up can lead to a lot of stress. If you decide that a refinance is necessary to help bring your payments down, turn to Leading Edge Title. Our title policies are underwritten by Fidelity National Title Insurance Company and First American Title Insurance Company, and our security measures make sure your funds stay safe.
Contact us today and see how we can help you with your refinance.