Homes
Lessons From a First-Time Home Buyer: Yes, Your Payments Can Still Go Up
When we decided to ditch apartment life in favor of buying a house, one of the motivating factors was that, while rents tend to rise from year to year, our mortgage wouldn’t. Of course, while that’s true of our fixed-rate mortgage itself, that doesn’t mean that our monthly payments won’t increase. In fact, as we reached our first year anniversary in this home, we’re now going to have to start paying a bit more each month.
So what can cause these rising costs? Let’s look at three examples.
3 Reasons Why Your Monthly Payments Can Rise as a Homeowner
Adjustable-rate mortgage
First, if you have an adjustable-rate mortgage (or ARM), you may see your mortgage payments fluctuate over time. That’s because, in contrast to a fixed-rate mortgage, ARM interest rates will, well, adjust over time. This may be good news if rates go down… but they can rise as well.
Personally, we have a 30-year fixed-rate mortgage, so this was not our situation. But, if you do have an ARM, then this is obviously something you’ll need to be aware of and prepare for.
Insurance premiums
Now we come to what caused our monthly payments to rise. Since your monthly payment encompasses more than just the principal and interest on your mortgage, it’s these other elements — namely what goes into your escrow account — that could cause increases. This includes your homeowner’s insurance.
In our case, our annual homeowner’s insurance policy increased by more than $200 this year. For what it’s worth, we had our insurance broker compare quotes and, unfortunately, this remained our best option. Anyway, due to this increase, our escrow account payments were also adjusted upwards.
As a result of this update, we’re now paying about $65 more per month. Obviously that amounts to more than $200 a year combined, but this new amount is to ensure that we’re able to pay off next year’s premium even if another increase hits. Actually, another reason for the sharp increase is that we had a shortage this time which was not only brought forward but led the company’s projections to further hike our payments to prevent this in the future.
Property taxes
The other part of our escrow account is our property tax. Of course, just as our insurance can (and did) rise, your annual property tax payment can also increase. Thankfully, that wasn’t the case for us this time around, but it’s definitely a possibility in the future.
Even as a homeowner with a fixed-rate mortgage you may not need to worry about rising mortgage payments the same way you do with rent, the amount you pay per month overall could still increase. This is why it’s important to give yourself plenty of breathing room when it comes to your homebuying budget. On top of that, it’s always a good idea to be prepared for these increases so you’re not caught off-guard.
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