If you have a fixed mortgage and your payment changes, it’s probably because you have an impound account and there was a change in your property tax or homeowners insurance bill.

Anytime reassessment values go up or any new bonds or levies are voted for within your county, those are collected through your property tax bill. Every month when you pay your mortgage, one-twelfth of your property tax bill is collected and one-twelfth of your homeowners insurance bill is collected. Your mortgage company keeps this in your escrow account and tallies everything they’ve collected.

Whenever your property tax bill and homeowners insurance bills are due, the mortgage company pays those out. Usually between February and May, your mortgage company will perform an assessment on how much they’ve collected and paid out. If they’ve collected more than they’ve paid out and there is an overage in the account, they’ll send you an escrow reconciliation via a refund check and adjust your payments lower since they know next year’s bills will likely be lower.

For example, let’s say your property tax bill is $100 per month and when the reassessment happens, or any new bonds or levies are issued and collected, that bill increases to $150. Most people assume their mortgage will go up by $50, but what actually happens is your payment goes up by $100 for the first year. The first $50 reimburses your mortgage company for what they fronted for you and the other $50 is collected to ensure that they have enough money going forward to pay your bills next year.

That $100 increase should only be for the first year. The following year, it should drop back down to $50 so they’re only collecting what’s due or what they’re paying out. Every year you’ll get an escrow reconciliation. When it does, give your mortgage company a call. They can help walk you through the process and explain the difference in your monthly payment.

If you have any other questions about this topic, don’t hesitate to reach out to us. We’d be glad to help you.