Why Your Mortgage Payment Went Up When Your Rate Didn't: Property Taxes and Escrow Explained
Your interest rate is fixed, but your monthly payment still rose. This post explains why property taxes and escrow are usually the cause, how to read your escrow statement, and how a successful appeal can bring the payment back down.
Why your mortgage payment went up when your rate didn't
A typical monthly mortgage payment has two parts:
- Principal and interest. On a fixed-rate loan, this part stays the same for the life of the loan.
- Escrow. Your servicer collects money each month to pay your property tax bill and homeowners insurance (and sometimes mortgage insurance) for you.
Escrow is not fixed. Your servicer estimates what your taxes and insurance will cost over the next year, divides that by 12, and adds it to your payment. If the estimate goes up, so does your payment, even though your loan terms haven't changed.
Property taxes are one of the most common reasons. Your tax bill is roughly your assessed value multiplied by the local tax rate, so it can rise in two ways:
| What changed | What it means | Can you appeal it? |
|---|---|---|
| Your assessed value went up | The county now values your home higher | Often yes, through an assessment appeal |
| The local tax rate went up | Schools, cities, or counties raised their rates | Generally no, since it applies to everyone |
| Both | Bill rises faster than either alone | Only the assessment part |
Homeowners insurance increases can also raise escrow, so check that line too.
A simple example of how escrow changes
Here is a hypothetical. Your property tax bill was $4,800 last year, and your servicer collected $400 a month for it. This year the bill comes in at $5,600.
- The new monthly tax amount is about $467, which is roughly $67 more per month.
- Your servicer also under-collected last year. It paid out $800 more than it had set aside, so the account is short.
- If the servicer spreads that $800 shortage over 12 months, that is another $67 a month.
For the next year, your payment could rise by about $130 a month, even though your rate never moved. Once the shortage is paid off, the payment usually drops by the shortage portion. The higher tax portion stays.
Your numbers will differ. Escrow increases of $50 to $300 a month are not unusual, depending on the size of the tax change and the shortage.
How to read an escrow analysis statement
Servicers send an escrow analysis at least once a year. It looks dense, but it has a few key sections.
- Current and new payment. Find the new total payment and the date it starts. Look for the escrow portion separately from principal and interest.
- Projected disbursements. This lists what the servicer expects to pay out over the next 12 months, usually property tax and insurance. Compare the tax figure to your most recent tax bill. If it looks too high or too low, ask why.
- Account history. This compares what the servicer expected to collect and pay last year with what actually happened. A gap between the two often explains a shortage.
- Shortage or deficiency. A shortage means the account is projected to fall below the required minimum balance. A deficiency means the balance went negative. The statement should say how it will be handled, often by spreading it over 12 months or paying it as a lump sum. Many servicers let you choose.
- Cushion. Servicers are generally allowed to keep a small buffer in the account, often up to about two months of escrow payments under federal rules. If your payment seems high, check how much cushion is included.
Two quick checks are worth doing. First, confirm the tax amount matches your actual bill. Second, confirm the servicer is using the right property and the right tax year. Mistakes happen, and you can ask your servicer to correct them.
What to do if the tax portion is the problem
If your escrow went up because your assessment went up, you have some options.
- Check your assessment notice. Your county assessor sends one, usually once a year or after a reassessment. Look at the assessed value and compare it with what similar nearby homes are assessed at.
- Look for errors. Wrong square footage, extra bedrooms or bathrooms, or a finished basement you don't have can all inflate a value.
- Note the appeal deadline. These deadlines are often short, sometimes a few weeks after notices go out. They vary by state and county, so confirm yours with your county assessor.
- Don't wait for the escrow statement. Your servicer's analysis usually arrives after the tax bill has already gone up. The appeal window may be closing or closed by then.
A higher tax rate is different. You generally can't appeal a rate that applies to everyone, but you can still make sure your assessed value is fair.
How a successful property tax appeal lowers your payment
When an appeal lowers your assessed value, your tax bill goes down. Your escrow payment follows, but not instantly.
Here is the usual sequence:
- The county issues a corrected or reduced tax bill.
- Your servicer receives the new amount, or you send it a copy.
- At the next escrow analysis, the servicer recalculates your payment using the lower tax figure.
- If the account holds more than it needs, the servicer may refund the surplus. Surplus handling rules vary, and the refund may be small.
If you don't want to wait for the annual review, you can ask your servicer to run a new escrow analysis once you have the reduced bill. Servicers aren't always required to do this on request, but many will.
Savings are not guaranteed, and the timing depends on your county's process. Some appeals reduce the value only a little. In some places, a review board can also raise a value, though that is uncommon. A good appeal starts with solid evidence, such as comparable sales and any errors in the property record.
If a reduction saves you $600 to $1,500 a year in taxes, that is roughly $50 to $125 less in monthly escrow. The actual amount depends on your home's value and your local tax rate.
What to keep in mind
- Your payment can rise even with a fixed rate, because escrow follows your tax and insurance costs.
- A shortage can raise your payment for a year, then fade.
- Appeals address assessments, not tax rates.
- A lower tax bill reaches your payment at the next escrow analysis, or sooner if your servicer agrees to review it.
This is general information, not legal or tax advice. Rules differ by state and county, so verify specifics with your county assessor and your loan servicer.
Not sure if you're over-assessed? Send us your address at /start and we'll check for free. If we file an appeal, we charge 20% of your first-year savings, and you pay nothing if we don't win.