Why did my mortgage payment go up??

Sounds like there might be a change in your escrow account. Do you escrow insurance and taxes? Even with your mortgage's principal and interest holding steady….insurance and taxes are known to increase year-over-year. I personally now pay my insurance outside of the escrow to help keep down those year-over-year escrow increases. It's not perfect but….well you know ;)

This does tend to happen. The taxes on your home went up so the mortgage company has to collect more to support your new annual tax amount.

This is one of the most common and frustrating surprises new homeowners face, and you are right to ask. While it seems contradictory, it is entirely possible for your mortgage payment to go up even if you have a fixed-rate mortgage.

It's likely not your mortgage itself that changed, but rather the additional costs collected along with it. This almost always comes down to Escrow (or Impound) Accounts.

Here is the precise breakdown of what happened, what caused the increase, and what you can do about it, specifically for a homeowner in the Chicago area.

1. The Core Concept: Your Payment is More than Just Principal and Interest
When you make your monthly mortgage payment, you aren't just paying back the loan. For most homeowners, the payment consists of four key parts (PITI):

Principal (The loan balance) -> FIXED

Interest (The cost of borrowing) -> FIXED

Taxes (Property taxes) -> VARIABLE

Insurance (Homeowner’s insurance) -> VARIABLE

Your "fixed mortgage" only locks in the Principal and Interest (P&I). The Taxes and Insurance portion of your payment is what variable, and it is almost certainly the cause of your $70/month increase.

2. The Culprit: The Escrow Account Analysis
Most lenders require an escrow account (also called an impound account). This is a separate account where they "hold" a portion of your monthly payment to pay your property taxes and homeowner’s insurance bills when they come due.

Here’s what likely happened over the last year:

Year 1 Estimate: When you bought the house, your lender calculated your monthly escrow payment based on the estimated taxes and insurance from the previous year.

The Annual Escrow Analysis: About once a year, your lender performs a mandatory audit of your escrow account. They compare the money they collected from you over the last 12 months to the actual bills they paid for your property taxes and insurance.

3. Why Your Payments Increased (The "Escrow Shortage")
This is the part that caught you by surprise. When your lender ran the numbers, they found a discrepancy.

Your Payment Increased for Two Main Reasons:

The Bills Went Up (The Shortage): Between the time you bought the home and your analysis, your actual property taxes or insurance premiums increased. (In the Chicago area, property tax assessments often jump after a sale, and insurance rates have been rising nationwide.) Your lender paid these higher bills using the "cushion" in your escrow account, but they ended the year with less money than they were legally required to hold. This is called an "Escrow Shortage."

The Lender Recalculated for the New Reality (The Adjustment): The $70/month increase isn't just to repay the shortage. Your lender has now recalculated your monthly escrow payment based on the new, higher tax and insurance bills. They are increasing your monthly payment to ensure they collect enough money to pay next year’s expected (higher) bills and rebuild your mandatory reserve "cushion."

The Spin (The "Good" News): This means you have a Fixed Rate Mortgage that protects you from rising interest rates. The increase you are seeing is a result of rising local costs, not a flaw in your loan product. Your lender is actually protecting you; if they didn't collect these funds monthly, you would be hit with a massive, unexpected multi-thousand dollar tax bill at the end of the year.

4. What You Can Do About It
While you can't typically avoid rising taxes and insurance, you have options for managing the increase.

Review Your Escrow Analysis Statement: This is the most important step. Find the physical or digital document from your lender. It will clearly line-item exactly how much your property taxes and insurance increased, causing the $70/month adjustment.

Shop Your Homeowner's Insurance: Unlike property taxes, you have control over your insurance. Call an independent insurance broker to see if you can find the same level of coverage with a different provider for a lower premium. If you find a better rate, you can switch providers and your lender will adjust your escrow payment downward.

Request to Pay the Shortage in a Lump Sum (If Applicable): In some cases, your lender will give you the option to pay the past "shortage" amount as a one-time lump sum. This will lower your ongoing monthly payment increase because you aren't "repaying the past" on top of "preparing for the future."

Appeal Your Property Taxes (A Long-Term Strategy): If you believe your property tax assessment is inaccurately high, you can appeal it. While this won't change your payment this year, a successful appeal will lower your taxes (and thus your escrow payment) next year. This is a common practice in Cook County.

Summary for FastExpert Clients:

If your mortgage payment went up on a fixed loan, it is almost certainly a change in your Escrow (Taxes and Insurance) portion. This happens during your lender’s mandatory annual review (the Escrow Analysis). Your lender is simply adjusting your payment to cover higher bills and maintain required reserves. This is a normal part of homeownership, but you can manage it by shopping your insurance and reviewing your property tax assessment.

Cathy's Quick-Tip: In the Chicago area, particularly Cook County, property taxes are notoriously complex and can fluctuate significantly, often increasing substantially a year or two after a sale. When my team represents buyers, we emphasize this post-sale adjustment so our clients are not surprised. We have partners who specialize in property tax appeals and can help you evaluate if your new assessment is fair.

With a fixed mortgage, only your principal and interest stay the same. Your total payment can still rise if your property taxes or homeowner’s insurance increase, since those are paid through your escrow account. When the annual bills go up, the lender adjusts your monthly payment to keep the escrow funded. This is why I always encourage buyers to stay a little below their max comfort level. Small escrow changes can shift the payment from year to year.

Yes, increased mortgage payments can be a surprise. Check to determine if the property taxes or home insurance premiums went up. Tax increases can be appealed if you can prove that your home would not sell for the value the tax assessor has stated. Home insurance premiums can be reviewed with your insurance carrier to determine if bundling multiple policies can achieve a reduction or possibly obtaining higher deductibles on your policies.

In most cases this is due to a tax rate increase in your area. This amount may go up depending on the needs of the community. A lot of times they do this when they vote on a budget for the physical year.

Your mortgage payment is typically made up of principal (the amount that goes towards your loan balance, interest (the amount you pay in exchange for borrowing the money) and escrow (taxes and insurance) - if your interest rate is fixed then likely either your taxes or insurance increased. This was a tax assessment year for a lot of people and when the values went up that made a lot of tax bills increase as well.

If you don't have an adjustable rate mortgage check your property taxes and insurance, one or both of those likely went up and can continue to go up. You can also call your mortgage service provider and ask them to do an escrow analysis with you to give you a better understanding!