Why fixed-rate mortgage payments fluctuate

The benefit of a fixed-rate mortgage is that your interest rate stays consistent. But your monthly mortgage bill can still change — in fact, it generally fluctuates at least a little bit every year. Rising home values and insurance premiums have caused unusually dramatic increases for some homeowners in recent years. Here’s why and what you may be able to do about it if your payment has increased significantly.

Mortgage payments change because of escrow — what is that?

Your mortgage payment gets broken down into multiple parts: There’s the money you pay into your principal, which pays off the debt you owe your lender and builds equity; there’s the interest; and there’s your escrow payment, the account used to cover your property taxes and your home insurance.

The part of your fixed-rate mortgage payment that changes annually is your escrow. Each

year, the financial institution that holds your mortgage estimates how much you’ll pay in property taxes and home insurance. If your home value has risen since the prior year, the cost of your taxes and insurance will also increase. Thus, the entity that holds your mortgage will hike up your escrow to ensure your monthly payment can cover those higher bills. (You’ll get a refund check if the estimate ends up being too high and there’s money left over in your escrow account after a year.)

Why did my mortgage payment go up so much?

The very thing that homeowners usually want — an increase in their home’s value — is most likely the culprit, though other factors may have also contributed.

“Generally, home values have been going up across the country,” says Rob Cook, vice president of marketing at Discover Home Loans. “That does ultimately impact the tax liability that borrowers have.”

An increase in home values doesn’t just impact the taxes you owe, says Joann Thomas-Vason, the mortgage lending manager at First Florida Credit Union. It also affects your insurance premiums.

Home insurance premiums nationwide rose by nearly 9% in the first eight months of 2023, according to financial analytics company S&P Global, and 15 states saw monthly insurance payments increase by a double-digit percentage.

According to a study from Policygenius, an online insurance marketplace, insurance costs have also escalated because of extreme weather. U.S. insurers paid out $99 billion in claims because of natural disasters in 2022; they appear to recoup those losses by charging higher premiums, the study says. It also cites inflation and supply-chain issues as reasons for higher premiums.

Can I protest the increase?

Your local tax authority will send you information well in advance of any changes in the taxes you’ll have to pay and will notify you about how they’re determining your home value. (You should expect an increase in home value if you do a renovation or make other significant improvements to your home.)

“Homeowners should not discard that — that’s something you should look at and understand, ‘Okay, well, if my tax burden is going to go up, at some point my escrow requirements are going to go up,’” Cook says.

If you disagree with the valuation of your home, each jurisdiction will have a process for you to appeal the estimate.

Thomas-Vason suggests speaking to your home insurance provider as well “to see if there’s any way possible to lower that premium,” and shopping around to ensure that you’re getting a good deal.

If you won’t be able to pay the increased monthly cost, she recommends talking to your servicer, which is the financial institution that holds your loan.