Mortgage Payments are Never Fixed
I don’t care what the mortgage banker tells you when you’re signing the loan. Your payment is never fixed. Even if you fix the rate, the payment is going to fluctuate. Perhaps I suffer from a changing payment all the time because I keep my escrow balance as low as possible and I live in a state which changes the tax assessment yearly, but in the 2.5 years I’ve owned my apartment, the payment has changed at least twice. It’s annoying.
I got a notice from the bank this week. They want a little more for escrow and my payments are going up by about $22. It’s not a lot and all of that change is for escrow money, but it still stinks. I’m luckier than most since I’ll probably see a chunk of that money back as a property tax refund next year, but it does make me wonder if I should just apply for tax relief so the money doesn’t have to walk out the door in the first place. Unlike some banks, mine doesn’t let me collect interest on the escrow. If they did, I’d leave a bigger surplus in it!
So keep that in mind if you’re budgeting your mortgage. You may experience a change in the payment due to your property tax/escrow payment. Are you going to be able to absorb it? In Virginia, I pay it semi-annually in two chunks. I can expect that the bank will examine my escrow balances at least once a year and readjust my payment amount. Fortunately, I have been able the absorb the $15-25 marginal rise in payments, but it irritates me that it changes at all. The escrow payment used to be $62.42, now it’s $106.07. The only comfort is that the refund has gone up from $500.00 to $600.00 and still represents about half of my taxes.
I love a rising real estate market, but the correlated property tax increase stinks. Just for fun, I decided to look at some property listings for places closer to my office. (This is because I’ve been going to a friend’s house for lunch.) I know that I can’t afford to buy anything there because it’s very expensive, but I also know that the cost of renting a similar apartment out there wouldn’t be any cheaper than my mortgage and HOA fee. In fact, it would probably be a lot more because I’d have to pay extra for utilities and swanky amenities I won’t use. I don’t even think my car insurance would get any cheaper, which is where a lot of people find savings when they move out of the city to the suburbs. Nor do my state taxes since I’m still in the same state. (But moving from DC to VA certainly made a huge difference in that respect. Have you explored changing your tax jurisdictions to save money? Just a thought.)
finance girl wrote:
That’s why I pay my taxes and insurance separately. My mortgage payment will stay the same, it’s a fixed 30 year, but yep taxes and insurance are variable. I put the money aside monthly in a money market mutual fund, so not only am I not having to pay it to escrow, but I am able to earn interest off it until it’s due.
Maybe if down the road you refinance, you can separate them too and pay them on your own? Many people don’t know they can do this, and just assume they have to pay them to the mortgage company.
I think the mortgage companies make huge amounts of money this way, as they are able to invest that money until it’s due.
Posted on 16-Feb-07 at 12:13 pm | Permalink
Clever Dude wrote:
Shortly after closing on my first home, our mortgage payment (we have 2) that contains tax and insurance escrow went from $1652 to $1766 per month because of increases in taxes. Oh, and Allstate decided that I needed more coverage because of the higher assessment (I have since fixed that).
Then, last year, my payment went up another $15 a month because the mortgage company miscalculated my escrow requirements and needed to fill in.
It’s still better than the $400 increase in rent I would have been stuck with had we stayed where we were.
Posted on 16-Feb-07 at 12:18 pm | Permalink
Kim wrote:
Your mortgage payment on a fixed rate doesn’t change. Your taxes and insurance may, and often do. They are not your mortgage, even if you pay it all to the same servicer. Does that make it difficult to budget, well, a little more difficult, but doesn’t your car insurance change occasionally, your electric usage, the cost of gas (if you drive), the cost of peanut butter, the price of your favorite meal at your favorite restaurant?
Posted on 16-Feb-07 at 4:52 pm | Permalink
Adventures In Money wrote:
I hate it when I get letters like that from mortgage companies. first of all they rarely tell you which property its for. just the loan number, which sucks if you have multiple properties. 2ndly, they’ll give you a refund and then say that there’s a shortfall so you need to send in an extra $125!!!
Posted on 17-Feb-07 at 2:51 pm | Permalink
Rob Carlson wrote:
fluctuate, v., never go down.
Posted on 18-Feb-07 at 9:51 pm | Permalink
Doug wrote:
Don’t fret….you blog about $25 variations in your payment. Think of all those idiots that took on a pay option ARM when mortgage rates were at historic lows… they’re seeing hundreds $$$ of dollars in variation and are JUST NOW deciding maybe a fixed rate would make sense…of course, it made a lot more sense 2 YEARS AGO!
Posted on 18-Feb-07 at 10:28 pm | Permalink
lpkiten wrote:
hi mapgirl! glad to see you are still blogging!
Posted on 19-Feb-07 at 5:17 am | Permalink
tinyhands wrote:
Echo from another homeowner WITHOUT an escrow account. It takes discipline to set aside the money, but it’s my money and I prefer to be in control. Plus, I know two people whose mortgage companies underfunded their escrow accounts and got hit with HUGE tax penalties at year end. One had to sell her home. (Granted, she should have been keeping an eye on her statements.)
You may not have to refinance to close your escrow account. It depends on who is servicing your mortgage. Call them, but be prepared to pay a fee ($50-150) and make sure that you establish insurance and get the tax bill sent to you. Your lender usually has the right to charge you (and it ain’t cheap) if you fail to get insurance, and your municipality usually has the right to seize your home if you don’t pay your taxes.
Posted on 20-Feb-07 at 11:20 am | Permalink
Mapgirl’s Fiscal Challenge / Mortgage Payments are Never Fixed Redux wrote:
[…] Jim at Blueprint has an article about mortgage payments never being fixed. Funny that. He sounds like me! […]
Posted on 16-Mar-07 at 2:18 pm | Permalink
Blaine Moore (First wrote:
Thankfully, I make a small amount of interest on my escrow payments. That being said, I budget seperately for the insurance and tax costs of my house than for the mortgage itself, which is in fact fixed. The only part of that that fluctuates is that my principal payment is larger each month since I’m paying it down and I usually add a bit extra to speed up the process.
Posted on 19-Mar-07 at 12:28 pm | Permalink