Here’s why your monthly mortgage payment went up so much
Many homeowners across South Florida are having sticker shock when receiving notices of a shortage in escrow, after mortgage lenders notified them that their monthly payments would be going up.
It was the case for Kenneth Rankel, 58, and his husband when they received a notice from their mortgage lender last week that they had a shortage in escrow as a result of rising insurance costs, and therefore their monthly payment would be increasing by about $323 a month.
“The insurance company sent us a notice in November that the insurance was going up,” Rankel said. “I just wasn’t too sure how much it was going to be.”
The couple isn’t alone. Mainly due to increasing insurance costs, and in some cases rising property taxes, many homeowners are receiving notices that their monthly payments will be significantly higher this year due to a shortage in escrow.
“I probably had personally so far in the last month half a dozen calls on what’s going on,” said Stephen McWilliam, president and broker of Florida State Realty Group & Florida State Mortgage Group. “They don’t understand why it happened and they just see their mortgage payment going up.”
A homeowner’s mortgage payment consists of two parts: the actual loan amount (principle and interest) and the escrow portion of the bill.
The escrow payment is the amount that goes toward costs such as property taxes, homeowners insurance and mortgage insurance, plus a little extra as a cushion to try and make sure that the account doesn’t fall negative. The mortgage lender will collect the estimated amount of property tax and insurance each month in anticipation of the yearly bill.
“Typically the bank or servicers will send out an escrow analysis annually. That will show you how your escrow account did last year and whether you were escrowed enough to cover the costs of taxes and insurances or was it just enough,” said J.C. de Ona, southeast Florida division president of Centennial Bank.
Some years there aren’t much changes, but other years, homeowners can receive notices of a shortage in escrow, or a notice that there aren’t enough funds in the account to cover that amount due, because of an unplanned increase in insurance or taxes.
Let’s say a homeowner was saving $200 a month in their escrow account because their insurance bill was $2,400 a year. Now, when the new year hits, the insurance policy doubled on their home and it’s now $4,800 a year.
Not only does the lender have to pay the $4,800 up front, they also have to start budgeting for the perceived cost for next year as well.
“It’s almost going to be double because they were short for last year and they have to prepare for next year. A $200 difference is going to increase to $400 because you were short for last year,” said Craig Garcia, president of Capital Partners Mortgage in Coral Springs.
For homeowners who received notices of escrow shortages, the most likely reason is due to increased insurance costs.
“What I am seeing this year is the insurance costs going up,” de Ona said. “Across the board, we are seeing about 10-20% increases in insurance premiums.”
For Rankel, their homeowner’s insurance premium shot up by over $3,000 for the year to cost them a little over $9,000.
And Rebecca Hawronksy and her husband, living in Cooper City, got a notice that their insurance would be going up by 40%.
According to state data, last year average annual premiums were over $4,000 in five Florida counties, including Broward, Palm Beach, Miami-Dade and Monroe. Many homeowners have seen their insurance premiums double over the past five years to be about three times the national average.
Another reason — though less likely since many homeowners have a homestead exemption — could be an increase in property taxes. It’s more likely to happen to a homeowner who purchased a home in the past year or two, or for those who might have an investment property.
“Something our office sees often is that a homeowner’s first tax bill may reflect the exemptions accrued by the previous homeowner. The second property tax bill after the new resident has owned the property for a full year would reflect the current owner’s exemptions, and often, those savings may be lower than the previous owner’s,” noted the Palm Beach County Property Appraiser’s office.
It’s hard to prepare for an increase in insurance premiums, since it’s unknown how much they might increase each year. If it’s possible, experts suggest having some reserves set aside to account for any changes in the policy.
But for many homeowners, increased costs are causing them to have to cut back where they can to make up the difference. Rankel is reworking his monthly budget to cut back, including getting a less expensive phone plan.
“We’re doing whatever we can to lessen the impact,” Rankel said.
For homebuyers in general, it’s important to remember that it’s likely the taxes will change on a property they buy and to take that into account when purchasing a home, said Patty DaSilva, broker with Green Realty Properties in Cooper City.
The Broward County Property Appraiser’s office has a calculator on its website to help homebuyers figure out how much their taxes will be on the home they purchase, as does the Palm Beach County Property Appraiser’s Office.