If you chose an adjustable-rate mortgage, it should come as no surprise when your mortgage payment fluctuates — that's what "adjustable" means, after all. But how can you predict if and when your fixed-rate mortgage payment will increase? And did you even know that it could? Although your monthly payment with a fixed-rate mortgage shouldn't vary wildly, there are several reasons why it won't always be the same either. The good news is that knowing this information helps you be proactive, enabling you to watch for signs that your payment could increase.
1. It's property tax assessment time
Most things that go up must come down. But this isn't true for everything — our age, for one. And there's something else that tends to go up and never come down: property taxes. "The downside to a strong real estate market is that taxes will inevitably increase," says Josh Moffitt, president of Silverton Mortgage in Atlanta, GA. "If your home value increases because of market conditions, taxes will follow, and it will cost more to insure the home." A great way to tell whether a tax increase might be on the horizon is to keep an eye on what neighboring homes are selling for by checking Trulia's Recently Sold Homes. "When you see neighbors selling their house quickly or at a significantly higher price than what you paid for your home, it might be a sign that taxes are on the rise," says Moffitt.
"Each year, homeowners should receive an annual tax assessment," says Greg Clevenger, a California real estate agent. "Simply dividing the annual assessment by 12 months to get the monthly amount will allow those of us who escrow our taxes and insurance to compare last year's escrow account to this year's."
If your property taxes increased, you might want to challenge your property's assessment. "Every county has an appeal process for property value assessments," says Moffitt. "When a home's value is assessed too high and taxes subsequently increase, the homeowner can file an appeal in hopes of lowering the assessed value." About 20% to 40% of people who challenge their tax increase are successful in lowering their tax bill.
Also, make sure you've taken any tax exemptions available to you. "For example, if the home is your primary residence, ensure that you have applied for and are receiving the homestead exemption," says Moffitt, adding, "Many states have senior-citizens exemptions, which cut taxes for homeowners at a designated age."
2. It's homeowners insurance renewal time
Insurance is one of those products that no one wants to buy, but if you don't have it, you'll be really sorry if something were to happen. If you have a mortgage, your lender will require you to have homeowners insurance. But you have some control over how much you pay for it. "Your insurance agent should be communicating effectively to advise when there are rate increases," says Clevenger. "If not, you need to find a new agent."
When you're selling your home (or when you're just estimating what you think it's worth), you might overvalue it. You don't, however, want to overvalue your home when you're trying to figure out how much to insure it for. "When it comes to insurance, you need only what is required to repair or rebuild your home if [it were] destroyed," says Clevenger.
It's also a good idea to comparison-shop for insurance every so often. You might want to do this every year at renewal time. "Shop for the best coverage for the price, not just the best premium," recommends Clevenger, who also says to ask the agent about the company's history of rate increases.
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3. There's a low balance in your escrow account
Some people choose to pay their property taxes and homeowners' insurance as part of their mortgage payment, instead of handling these expenses on their own. If so, an escrow account is opened. "Escrow accounts are analyzed annually by the lender," says Yvonne Price, senior mortgage banker for Atlantic Bay Mortgage Group. If there isn't enough money in the escrow account to cover taxes and insurance, your monthly payment will increase. "Borrowers can pay the difference in one lump sum or spread it out over the next 12 months," says Price.
If you're concerned that you aren't paying enough into your escrow account and don't want any surprises, you can always pay a little more than what's required. Just specify that the extra money should go to escrow. You won't lose the money if you pay too much, because "lenders are required to refund any excessive overage," says Price. But think twice before using that refund check on a spending spree. "We always recommend putting that check into savings to prepare for the next boost in taxes or insurance," says Josh Moffitt.
4. Lender error
Sometimes lenders calculate your payment incorrectly, particularly when you're including property taxes and homeowners insurance. "Lender errors generally occur when there is an assessment done around the same time frame the property transfers ownership," says Clevenger, but "a good real estate agent can help advise the client on the expected tax liability."
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