Explore the most common reasons why mortgage payments increase, as well as a few special situations that may cause payments to go up.  

  • Mortgage payments are made up of principal, interest, taxes, and insurance. An increase in any of these elements may result in a higher mortgage payment. 
  • It is common for property taxes and homeowners insurance premiums to increase over time, causing mortgage payments to increase as well.
  • Mortgage payments may also increase as a result of escrow account shortages, rate changes on an adjustable-rate mortgage (ARM), the expiration of an interest rate buy-down period, the expiration of property tax exemptions or credits, or (in some cases) a refinance. 

Have you noticed an increase in your mortgage payment? If so, you may be wondering Why did my mortgage payment go up?

There are a few common reasons for mortgage payments to increase over time, as well as several special circumstances that could cause a rise. This article will cover the most likely reasons why your mortgage payment went up and explain what you can do if you’re struggling to cover the payment.

How Mortgage Payments Work

To understand why your mortgage payment may have increased, it’s important to understand how mortgage payments work, including the elements of a mortgage payment and the role of mortgage escrow.

What Is Included in a Mortgage Payment?

Mortgage payments typically include four parts, known as PITI:[1]

  1. Principal: The portion applied to the amount borrowed.
  2. Interest: The cost of borrowing money.
  3. Taxes: Specifically, property taxes, which are levied on property owners by local governments to fund local services, including infrastructure, education, police, and fire.
  4. Insurance: As a homeowner with a mortgage, you’re required to carry a homeowners insurance policy to protect against hazards like wind, lightning, fire, theft, and even accidents occurring on the property. This accounts for those premiums. Additionally, some buyers (primarily those who made a down payment below 20%) carry a mortgage insurance policy, which protects the lender in the event of a default. These premiums are also covered by this insurance element.  

The Role of Mortgage Escrow Accounts

Unlike principal, interest, and mortgage insurance, property taxes and homeowners insurance premiums are not levied by the lender. Taxes are levied by the local tax assessor or tax collector, while homeowners insurance premiums are levied by the insurance company. 

So why are property taxes and homeowners insurance included in your mortgage payment?

These charges are included in your mortgage payment so the lender (or loan servicer) can collect payments toward these expenses each month, keep them safe in an escrow account, and pay them on your behalf when your tax bills and premiums become due.[2] This assures your lender that these critical bills are paid. 

Lenders have a vested interest in the property, which is used as collateral for the loan. If the taxes were to go unpaid, the property could potentially be sold at tax auction, leaving the lender without recourse. If the insurance policy were to lapse due to nonpayment, the property would be exposed to hazards without financial protection. Collecting these payments into an escrow account and paying these bills on your behalf protects the lender’s financial interest in the property. 

Common Reasons Your Mortgage Payment Might Increase

Property Tax Increases

Property taxes are largely based on the taxable value of your home, as determined by your local tax assessor (though there may also be some direct assessments that are not related to the property value).[3] If the value of your property goes up (due to market conditions or home renovations), your property taxes may increase as well, which may cause your mortgage payment to go up. 

Increases in Homeowners Insurance Premiums

Insurance premiums generally increase over time due to inflation.[4] Premiums could also increase if you request additional coverage, change your deductible, or request greater coverage as the value of your property increases over time. Rates could also increase for those living in areas that are more susceptible to hazards like wildfires, hurricanes, or tornadoes. Any of these factors could increase your mortgage payment. 

ARM Interest Rate Increases

If you have an ARM, rather than a fixed-rate mortgage, your interest rate may adjust due to changing market conditions.[5] Your loan agreement outlines the timing of potential adjustments, as well as how much the interest rate can change, so you can be prepared for periodic adjustments. Because ARMs typically come with lower rates during the introductory period, they may be more likely to increase following the end of the introductory period (often at annual or semi-annual intervals).[5] However, it is also possible for your mortgage payment to go down with an ARM if interest rates drop during an adjustment period.

Escrow Account Shortages

Each year, your lender, loan servicer, or escrow agent conducts an escrow analysis, in which they review the latest homeowners insurance statements and property tax bills to estimate the total amount needed to cover those costs in the coming year. In many cases, the exact figures won’t become available until later in the year, so the estimates could be too high or too low. If the estimates were too high, the escrow analysis might trigger a refund to you. However, if the estimates were too low, there is a shortage, which could cause an increase in your mortgage payment as you repay the shortage.   

Special Situations That Can Increase Your Mortgage Payment

Loan Types and Structures

Some mortgage loans are structured with built-in increases in payments. Here are a few examples:

  • Temporary interest rate buy-downs. A mortgage rate buy-down is when fees are paid up front to reduce the interest rate for a set period (often one to three years). The upfront fees are often paid by a developer, seller, or lender as an incentive for the homebuyer. This may reduce the payments for the buyer during the lower-rate period, but the mortgage payment will increase when the interest rate returns to the agreed-upon fixed rate.
  • Interest-only periods. Some mortgage loans (such as jumbo loans) offer interest-only introductory periods. During that period, payments are low because the borrower is only required to pay the interest portion, rather than paying both principal and interest. Once the interest-only period expires, the mortgage payment increases to account for the principal balance repayment as well.
  • Balloon mortgages. Balloon mortgages offer comparatively low monthly payments, followed by a large lump-sum payment at the end. Homeowners with balloon mortgages often plan to sell or refinance the property before the balloon payment comes due to avoid the substantially higher mortgage payment.    

Expiration of Tax Exemptions or Credits

In some cases, homeowners benefit from property tax credits or exemptions. If those tax incentives expire, property taxes may increase, which could increase the mortgage payment.  

Refinancing and Its Impact on Payments

Mortgage refinancing may cause mortgage payments to increase or decrease, depending on the terms of the refinance. Many homeowners use refinancing to secure a lower interest rate or lengthen the loan term, which may reduce the mortgage payment. 

However, there are a few refinancing structures that could cause an increase, such as:

  • If you refinanced to a shorter loan term (intending to pay off your mortgage sooner and save on total interest expense), your payments may increase because the principal balance would be spread across fewer months.
  • If you get a cash-out refinance. This allows you to convert a portion of your home's equity into funds that you can use for home improvement projects, debt consolidation, or other large purchases. A cash-out refinance replaces your existing mortgage with a new mortgage that comes with a new interest rate, loan terms, and typically a higher total balance (which includes the original mortgage amount, closing costs, and the funds you "cash out"). This higher balance can lead to an increase in your mortgage payment amount.
  • If you refinance to a different rate type (for example, change from an ARM to a fixed rate), the mortgage payment could increase if the new rate is higher than the old rate. While it’s typically not advisable to refinance unless you can secure a lower rate, some buyers are willing to pay the higher rate for the stability of having the rate fixed.   

What To Do If Your Mortgage Payment Goes Up

If your mortgage payment increases, you may want to find out why. Start by reviewing your mortgage statement to understand how much of your payment goes toward each element (principal, interest, taxes, and insurance). You may also compare the current statement to previous statements to determine which element(s) increased. If you’re unsure why the payment went up, contact your lender or loan servicer. 

Then you can explore options for lowering the mortgage payment. For example:

  • If you feel the tax assessor’s estimation of your property’s taxable value is too high, you may appeal the assessment to potentially bring your property taxes (and, ultimately, your mortgage payment) down. 
  • If you feel your homeowners insurance premiums are too high, you may adjust your policy or shop around for a new insurance company. 
  • If the issue is with the principal and/or interest, you may discuss possible options for lowering your payment with your lender.  

What to Do If You Cannot Afford Your Mortgage Payment

Sometimes changes in your circumstances (getting a lower-paying job, expanding your family, taking care of a relative, etc.) make your mortgage less affordable than it had been. There are also times when an unexpected event (such as a natural disaster, death in the family, or job loss) causes a financial hardship. 

It’s important to contact your lender if you cannot afford your mortgage payment for any reason. Lenders generally want to work with you to find a solution that prevents you from defaulting on the loan. Depending on your circumstances, a refinance or loan modification could lower the monthly payment. Or the lender might be able to offer forbearance to temporarily reduce or suspend payments to help you through a short-term hardship.[6]

Need Assistance with a PNC Mortgage Loan?

PNC has a team of professional Mortgage Loan Officers (MLOs) standing by seven days a week to answer any questions related to your payment or the escrow analysis process. Whether your loan was originated by PNC or acquired through a servicing purchase, you can call 1-855-744-2268 to speak to an MLO or visit any one of our 2,200 PNC branch buildings nationwide to get your questions answered.