Submitted by NachoDog1000 t3_z8gq02 in personalfinance
I received a letter from my mortgage servicer that my payment is set to increase by $600 a month next year and it's not making sense to me.
It's a fixed rate loan. My understanding is that taxes and insurance can increase the payments annually. This is my third year in the home. From the first to the second year my payment increased about $30 a month. $600 a month means my property taxes increased by $7,200 and I don't think they have.
The letter mentions something about the escrow account projected to be short but I'm not really following that piece or why it would be short.
I'm calling the servicer first thing in the morning when they open but was wondering if anyone had any guesses on why the payment could increase this much, or could it be an error from the servicer?
Edit: Called the loan servicer. The escrow account is currently short $4,000 from last year's property taxes. Half of the $600 is to make up for that short fall. The rest is increased property taxes and insurance. I can afford it, it's just a big surprise.
Edit 2: I checked the county tax assessor's website and
Taxable Value in 2020: 400,000
Taxable Value in 2021: 520,000
Taxable Value in 2022: 560,000
Mysunsai t1_iybkgrl wrote
The “escrow account” that it mentioned is the thing you are using to pay your insurance and property taxes. By law, the escrow account can include an additional reserve, and basically every mortgage servicer requires the maximum allowable reserve.
> Throughout the life of an escrow account, the servicer may charge the borrower a monthly sum equal to one-twelfth (1/12) of the total annual escrow payments which the servicer reasonably anticipates paying from the account. In addition, the servicer may add an amount to maintain a cushion no greater than one-sixth (1/6) of the estimated total annual payments from the account. However, if a servicer determines through an escrow account analysis that there is a shortage or deficiency, the servicer may require the borrower to pay additional deposits to make up the shortage or eliminate the deficiency, subject to the limitations set forth in § 1024.17(f).
Periodically, the servicer will analyze the escrow account, and adjust your payments as needed to account for both the tax/insurance/etc. as well as the reserve amount.
So, if the tax/insurance payments have been going up, the reserve was drawn on to make up the difference… meaning you now need to refill the reserve. Additionally, since tax/insurance went up, the size of the new reserve also went up, again increasing the amount needed to refill the reserve.
Once the reserve is refilled, your payments will be reduced somewhat. If the estimates were too high, you’ll be paid back the excess.
This is normal and expected behavior for every mortgage that uses an escrow account.