Why Did My Escrow Go Up? Why Did My Monthly Payment Change?

Wondering, “Why did my escrow go up, and why did my monthly mortgage payments suddenly increase? Homeowners everywhere are discovering that even with a fixed-rate mortgage, their payment amount isn’t always set in stone. 

Let’s see how and why your escrow account might be the culprit and what you can do about these unexpected hikes.

What Exactly Is an Escrow Account and Why Does It Matter?

Suppose you’re buying or selling a house. In that case, escrow is a type of financial arrangement where a third party (typically an escrow agent or company) holds and manages funds, documents, or assets on behalf of the two parties in the transaction. This intermediary ensures that both parties fulfill their obligations before the final transfer of funds or assets. 

In a home mortgage, escrow is an account set up by your lender or mortgage servicer to hold money for property-related expenses. Each month, part of your mortgage payment goes into this account, specifically earmarked for annual bills such as property tax, homeowners insurance, and sometimes private mortgage insurance (PMI) if your down payment was under 20%. 

When it’s time to pay your property tax or insurance premiums, your lender pays them on your behalf from your escrow account. This setup makes sure those big, infrequent bills don’t sneak up on you, and gives lenders peace of mind that nothing important slips through the cracks.

But if any of those costs go up, guess what? Your escrow payment—and your overall monthly mortgage payments—are likely going up too.

Why Did My Escrow Go Up?

Let’s dig into some of the most common reasons for an escrow payment increase.

Rising Property Taxes

Your local government can reassess the value of your home, sometimes annually, sometimes every few years. If your home’s value has gone up or voters approve a local tax hike for community projects or schools, your property tax bill could increase. 

Higher property taxes = higher escrow payments = higher monthly mortgage payments for you.

Higher Homeowners Insurance Costs

Your homeowners insurance policy premiums may change over time. They can go up for a variety of reasons—maybe you’ve made a claim, maybe your insurer increased rates across the board, or maybe you’ve upgraded your home (hello, finished basement or new kitchen!). 

Or, you adjusted your coverage, bundled policies, or your insurer reviewed the risk factors in your area (think: more storms, wildfires, etc.). Any of these changes can lead to a payment increase through your escrow.

More coverage and more risk mean higher insurance costs, which get rolled into your escrow account and drive up the payment amount.

Private Mortgage Insurance (PMI) Adjustments

If you started with less than 20% down, you’re likely paying PMI. If your PMI rates increase, or you haven’t hit that magical 20% equity to drop PMI yet, this extra insurance cost can push your escrow (and total) payment up, too.

Escrow Shortages

If last year your lender underestimated how much was needed, you could end up with an escrow shortage. This shortfall means your lender had to cover the difference for your taxes and insurance payments, and now they need to collect extra to fill the gap, on top of next year’s higher bills.

Interest Rate Spikes

While a fixed-rate mortgage keeps the loan’s interest rate predictable, homeowners with adjustable-rate mortgages (ARMs) can see payment increases if rates climb. Even with a fixed loan, only principal and interest are truly “fixed”—the escrow portion can still change when taxes or insurance rise.

Who Does the Escrow Analysis, the Annual Checkup?

Once a year, your servicer performs an escrow analysis. This is their opportunity to review past bills, check for an escrow shortage or surplus, and adjust your monthly payment as needed to make sure there’s enough to cover all those bills next time around.

If they discover a shortage, your payments will go up, not just to pay for higher taxes and insurance, but also to catch up on what was under-collected before.

Can Your Escrow and Mortgage Payments Go Down?

The good news: Yes! If your property tax assessment is lowered, you switch insurance providers for a better deal, or you finally reach 20% equity and ditch PMI, your overall escrow payment could drop. That means a smaller monthly mortgage payment for you.

What Are Some Smart Moves to Lower Your Escrow?

Want to keep your payments in check? Try these tips:

• Appeal your property tax assessment: If you think your home’s assessed value (and thus your property tax) is too high, contest it with your local assessor. If successful, this could directly reduce your escrow payment.
• Shop for homeowners insurance: Compare multiple insurers to see if you can cut your insurance premiums. Adjusting your deductible or bundling policies (like auto and home) might help, too.
• Request an escrow analysis: If you think there’s been a mistake or you’ve made changes that should lower your costs, ask your lender to recalculate your escrow requirements.
• Build an emergency fund: Even if your mortgage payment jumps unexpectedly, having some cash set aside cushions the blow and helps you avoid missing payments. Having clarity on how much you should have in an emergency fund can make these fluctuations less stressful, since you’ll already have a safety net in place to handle unexpected increases in your housing costs.
• Remove PMI: Once you reach 20% equity, contact your loan servicer to eliminate private mortgage insurance from your payment.

Why Did My Escrow Go Up: Key Takeaway

Your monthly payment might not be as “fixed” as you hoped, but understanding how your escrow account works puts you back in control. Stay alert for escrow analysis statements, review your bills, and appeal assessments or shop for insurance when needed. That way, the only surprise you’ll get from your mortgage is how prepared you feel—even if taxes or insurance costs sneak upward.

Remember: A jump in your escrow payment is most often due to changes in property tax, homeowners’ insurance, or an escrow shortage, not because your lender changed something behind your back. Staying informed and proactive is key to keeping your monthly mortgage payments as steady (and affordable) as possible.

Written by Ramona Sinha. February 24, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.