Why Did My Mortgage Payment Go Up? Understanding Escrow Changes in Wisconsin

You open your mortgage statement or annual escrow notice and see a higher monthly payment. The interest rate on your fixed-rate mortgage has not changed, so what happened?

The notice you received should show what changed. Here is what to look for and what you can do next.

Your Mortgage Payment Includes More Than Principal and Interest

A typical mortgage payment may include several parts:

• Principal: The portion applied to the amount you borrowed
• Interest: The cost of borrowing the money
• Property taxes: Taxes assessed by the appropriate local taxing authorities
• Homeowners insurance: The premium for your homeowners insurance policy
• Other applicable costs: Depending on the loan, this could include mortgage insurance or other account-specific charges

On a fixed-rate mortgage, the interest rate remains the same, but the total monthly payment may still change if another part of the payment changes.

If your taxes and insurance are paid through an escrow account, part of each mortgage payment is deposited into that account. Your mortgage servicer then uses those funds to pay the applicable bills when they are due.

Why Did My Mortgage Payment Go Up?

An escrow analysis reviews the money expected to go into and out of your account during the next 12 months. It also shows whether the account has a shortage, surplus, or negative balance.

Federal rules require mortgage servicers to review escrow accounts and provide an annual statement showing past account activity and projected activity for the coming year. The statement should also explain how any shortage, surplus, or negative balance will be handled. Learn more from the Consumer Financial Protection Bureau’s mortgage-servicing guidance.

Several changes may affect the result.

Property Taxes Increased

If your property-tax bill increases, more money may need to be collected through escrow to cover the next bill.

Property-tax amounts can vary across Wisconsin communities. Questions about a specific assessment or tax bill should be directed to the appropriate local assessor, municipal office, or county office.

The Wisconsin Department of Revenue’s property-tax resources can help you find information for property owners, local assessors, and municipal contacts.

Your Homeowners Insurance Premium Changed

If your homeowners insurance is paid through escrow, a premium change can affect the amount that needs to be collected each month.

Review the renewal information from your insurance provider. Confirm that the premium, property details, and coverage information are correct.

Questions about coverage, deductibles, discounts, or the reason for a premium change should go to your insurance representative. Questions about how the new premium affects your escrow payment should go to your mortgage servicer.

The Escrow Account Had a Shortage

An escrow shortage means the account contains less money than the target balance calculated during the escrow analysis.

For example, suppose the previous analysis estimated one amount for taxes and insurance, but the actual bills were higher. The mortgage servicer may still pay those bills from the account, leaving less money than originally projected.

The next analysis accounts for that difference and updates the amount needed for the coming year.

How a shortage is handled depends on its size and the requirements for your loan. Your annual escrow statement should explain how the shortage or any negative balance will be handled.

Follow the instructions in your notice or contact your mortgage servicer with questions about your account. The Consumer Financial Protection Bureau’s escrow FAQs provide additional information about federal requirements for shortages, surpluses, and negative balances.

The Escrow Cushion or Required Collection Changed

An escrow analysis considers the expected amount and timing of bills paid from the account.

The analysis may also include a limited cushion to help cover bills that are higher than expected or due before enough monthly payments have been collected.

Federal rules limit how much of a cushion a mortgage servicer may require. Your loan documents or other applicable rules may allow a lower amount. The Consumer Financial Protection Bureau’s escrow-account rules explain the federal requirements in more detail.

Your annual statement should show the projected account activity and how the upcoming escrow payment was calculated.

Something Other Than Escrow Changed

Not every mortgage payment increase is caused by property taxes, insurance, or an escrow shortage.

Depending on the loan and account, another possible cause could include:

• An interest-rate adjustment on an adjustable-rate mortgage
• The end of a temporary interest-rate buydown
• A change involving mortgage insurance
• An account-specific fee or adjustment

Review the complete mortgage statement and any accompanying notices before assuming escrow is responsible. If the reason is still unclear, contact the mortgage servicer listed on the statement.

How to Read an Escrow Analysis

An annual escrow statement can contain a lot of numbers, but you do not need to understand every line immediately. Start by comparing the information that directly affects your payment.

Your annual statement should show what went into and came out of the escrow account during the past year. It should also show the projected activity for the coming year, the ending balance, and how any shortage, surplus, or negative balance will be handled.

Ask yourself:

• Did a projected tax or insurance bill increase?
• Is the new payment covering a previous shortage?
• Are both affecting the amount?
• When does the new payment begin?

Example: How Taxes, Insurance, and a Shortage Could Affect a Payment

Suppose a homeowner’s projected annual costs change as follows:

• Property taxes increase by $360 per year
• Homeowners insurance increases by $240 per year

Together, the projected bills increased by $600 per year.

Dividing that amount across 12 months would equal:

Now suppose the escrow analysis also identifies a shortage from the previous year. If the shortage is divided among future monthly payments, that amount may be added to the $50 needed for the higher projected bills.

More than one escrow-related adjustment may affect the payment at the same time.

Actual payment changes depend on your loan, tax bill, insurance premium, escrow balance, and how the account is handled. Always rely on the analysis provided for your account.

What Should You Do If Your Mortgage Payment Increased?

Use this checklist to work through the change:

An increased payment does not necessarily mean an error occurred. However, reviewing the notice gives you an opportunity to catch incorrect information and understand what you will be expected to pay.

What If Your Escrow Analysis Shows a Surplus?

An escrow surplus means the account contains more money than its target balance at the time of the analysis.

Federal rules address how mortgage servicers handle escrow surpluses. The statement for your account should explain whether the surplus will be refunded or credited, if applicable. The result may also depend on whether the mortgage is current and the size of the surplus.

Review the notice before assuming that a surplus will permanently reduce your monthly payment. The next payment is based on the account’s projected needs, not only the balance on one day.

The Consumer Financial Protection Bureau’s escrow-account rules explain the federal requirements for handling surpluses.

Can You Prevent Your Mortgage Payment From Changing?

A fixed-rate mortgage does not necessarily mean the total payment will always remain the same.

The fixed interest rate does not change, but property taxes, insurance premiums, and other parts of the payment can.

You may not be able to prevent those outside costs from changing. However, a few habits can make an adjustment easier to understand and budget for:

• Open escrow and insurance notices when they arrive.
• Review property information and insurance renewals for accuracy.
• Keep room in your household budget for possible changes.
• Ask questions before the new payment takes effect.
• Keep your contact information current so important notices reach you.
• Avoid comparing your payment directly with another homeowner’s payment. Every property, policy, tax bill, loan, and escrow account can be different.

Escrow collects funds for applicable property-related bills and pays those expenses when they are due. It does not freeze the cost of property taxes or insurance.

Questions Wisconsin Homeowners Often Ask

Why did my mortgage payment go up if I have a fixed interest rate?

A fixed rate applies to the interest rate on the loan, not necessarily every part of the total mortgage payment. If property taxes, insurance premiums, mortgage insurance, or the escrow amount changes, the total payment may change.

What is an escrow shortage?

An escrow shortage means the account balance is below the target balance calculated during the escrow analysis. Your annual statement should identify the shortage and explain how it will be handled.

Do I have to pay an escrow shortage all at once?

Not necessarily. How the shortage is handled depends on its size and the servicing requirements for the loan. Follow the instructions on your annual statement or contact your mortgage servicer for information about your account.

Can homeowners insurance make my mortgage payment increase?

Yes. If your insurance premium is paid through escrow, a higher premium may increase the amount collected each month.

Contact your insurance provider with questions about the premium or coverage. Contact your mortgage servicer with questions about how the premium affects the escrow payment.

What happens if my property taxes decrease?

A lower tax bill may affect the next escrow analysis. However, the result also depends on insurance costs, the current account balance, and other projected activity. Review the annual statement for the full calculation.

Who should I call if I think the escrow analysis is incorrect?

Contact the mortgage servicer listed on the statement with questions about the escrow analysis or payment calculation.

Contact your insurance provider about policy information. Contact the appropriate local assessor, municipal office, or county office about a property assessment or tax bill.