You’ve been making your regular mortgage payments, as always, with no real hiccups. However, one day, you notice your payments are changing. What’s causing that? Why did my mortgage payment go up? We understand this can be an alarming realization, but not to worry. Today, we will explain why and how mortgage changes happen.
Property Tax Changes
A change in property tax could mean a change to your mortgage payment amount. Property taxes are fees that go toward funding essential services in your city. They calculate this tax depending on your home’s assessed value. Expect to see it fluctuate over the years. Property taxes are either paid directly to your municipality or through your mortgage. Check and see which option you are currently paying with. Some also prefer paying their property taxes monthly, while others prefer one yearly payment.
First-time Homebuyer's Property Tax
Your lender may collect this tax amount through your monthly mortgage payment. For first-time homebuyers, your lender will want to do this on their behalf. This is to ensure you are making the correct payments. Another reason is that lenders often require you to have 20% equity or more. As a first-time homebuyer, your down payment will be less than 20%.
The nice thing about this method is that you don’t have to think about it. They will estimate and withdraw the amount as your mortgage payment. With that said, because they make a generous estimate, the amount you pay will probably be higher than your actual taxes. This extra money will go toward future payments. Therefore, you may see fluctuations in payment amount based on property tax calculations.
Fixed Versus Variable Mortgage
The two standard mortgages are the fixed interest rate and variable interest rate. You know your interest rate or regular payment amount won’t change in a fixed interest rate mortgage. That’s because you’re locked into a fixed interest rate for the entire term of your loan. This option can be beneficial when interest rates are low. Some prefer the stability and ease this type of mortgage offers. Budgeting can be simpler because you always know how much to save for your monthly payment.
Variable Interest Rate Mortgage
If you have a variable interest rate mortgage, you could see some mortgage changes. This type of mortgage is usually why you might notice fluctuations in the amount you owe. There are a few reasons people choose a variable rate mortgage. One being if you believe interest rates will stay the same or drop over the term. However, this may not always be the case, meaning it can be riskier than a fixed-rate mortgage. Variable-rate mortgages change based on the market interest rate. This is what’s called the “prime rate.” In other words, an increase to the prime rate could mean an increase in your monthly mortgage payment. However, in the long run, people generally pay less interest in a variable rate mortgage.
If you recently refinanced your mortgage or are considering doing so, expect to see mortgage changes. A mortgage refinance means that you stop your current mortgage in exchange for a new one. This could be either with your current lender or a new one. There are many reasons someone might choose to do so. For example, you might want a lower interest rate to save money. However, you will have to pay a penalty fee. Another benefit is the ability to access the equity in your home or changing interest rate type. As mentioned above, you may want to change your fixed rate to a variable rate mortgage or vice versa.
While there are pros to refinancing, the cons may not be worth it. Make sure you do your research and think of the long-term as well. If you are considering refinancing your mortgage, contact a mortgage broker. They can provide advice and help you make a decision that is right for you.
When you cannot make your regular mortgage payments, a deferral can help. For catching up on these payments, you typically have two options. The first is a repayment plan. If you find mortgage changes, that is because they have added your missed payments to your current payment.
Reinstatement and forbearance are other options. You and your lender or broker have agreed to suspend your payments temporarily. Usually, you will pay a lump-sum amount down the road to make up for it.
Property tax changes, variable interest rate mortgages, mortgage deferral, and a mortgage refinance are four reasons for mortgage changes. Each come with their unique benefits and disadvantages. Whether you’ve recently made a change or are considering changing things up, know you don’t have to navigate it alone. Mortgage brokers are there to help you. From penalties to complex language, it can be difficult understanding your mortgage. Brokers know the field and have the prior experience to back it up. Let them take the stress off, so you can confidently make the best choices for you.