Why a Fixed-Rate Mortgage Payment Can Still Increase
A fixed-rate mortgage means your interest rate doesn’t change, but that doesn’t always mean your monthly payment stays the same. This surprises a lot of homeowners, especially after their first year.
One of the most common questions I hear from homeowners is this:
“If I have a fixed rate mortgage, why did my payment go up?”
It’s a fair question. A fixed rate mortgage means your interest rate does not change over the life of the loan. What many people do not realize is that your monthly payment can still change even when the rate stays the same.
Here is why.
What “Fixed Rate” Actually Means
A fixed-rate mortgage locks in your interest rate. That part of your payment will not increase or decrease due to market conditions.
However, most mortgage payments are made up of more than just principal and interest.
Your total monthly payment often includes escrow items like property taxes and homeowner’s insurance. Those amounts are not fixed.
Common Reasons a Fixed Rate Payment Increases
Property taxes
Local tax assessments can increase, especially after a home is purchased or reassessed. When taxes go up, your escrow payment must adjust to cover the higher amount.Homeowners insurance
Insurance premiums can rise due to inflation, claims in your area, or carrier changes. Even a modest increase can affect your monthly payment.Escrow shortages
If your escrow account did not collect enough to cover taxes or insurance the previous year, the lender may adjust your payment to make up the difference.Annual escrow analysis
Each year, your lender reviews your escrow account. If projected costs increase, your payment is recalculated accordingly.
Example: How This Plays Out
Let’s say you closed on your home with a monthly payment of $2,000.
A year later, your property taxes increase, and your insurance premium goes up. When your lender completes the annual escrow analysis, they adjust your escrow contribution to cover the new amounts.
Your interest rate stays exactly the same, but your monthly payment increases to account for higher taxes or insurance.
What You Can Do If Your Payment Increases
Review your escrow analysis carefully
Make sure the numbers match your actual tax and insurance bills.Shop for homeowners’ insurance when possible
You may be able to lower your premium by switching carriers.Ask about paying an escrow shortage upfront
In some cases, paying the shortage in a lump sum can keep your monthly payment lower.Appeal property taxes if applicable
If your home value was assessed too high, an appeal may reduce future tax bills.
Key Takeaways for Homeowners
A fixed rate protects your interest rate, not your entire payment.
Escrow items like taxes and insurance can change year to year.
Payment increases are usually administrative, not a lender trick.
Understanding why the change happened gives you options.
Frequently Asked Questions
Does this mean my lender changed my loan terms?
No. Your loan terms and interest rate remain the same. The adjustment comes from escrow items that are outside the lender’s control.
Can I remove escrow to avoid payment changes?
Some loans allow escrow removal, but not all. There may also be requirements or fees involved. It is important to review this carefully before making a decision.
Is this related to disclosure rules during closing?
Yes, in some cases. Certain disclosure timing rules can affect closing and payment changes during the loan process. You may find it helpful to understand the 3 7 3 Rule and how disclosure timing works during a mortgage transaction.
Final Thoughts
A payment increase can feel alarming, especially when you were told your rate is fixed. In most cases, it has nothing to do with your loan and everything to do with taxes or insurance.
If your payment recently changed and you want a clear explanation of what happened and what your options are, I am always happy to walk through it with you.