What Happens If Property Taxes or Insurance Increase?
Many homeowners are shocked when their mortgage payment increases - even though they locked in a fixed interest rate. The reason usually has nothing to do with the loan itself. Property taxes and homeowners insurance can rise over time, and when they do, your monthly payment often rises with them.
In this guide, we’ll explain exactly why these increases happen, how escrow accounts adjust your payment, what an escrow shortage really means, and how to stress-test your mortgage so payment increases don’t derail your budget.
Why Your Mortgage Payment Can Increase Even With a Fixed Rate
A fixed-rate mortgage guarantees that your interest rate - and the principal and interest portion of your payment - won’t change. It doesnot lock in your total housing cost.
Most monthly mortgage payments include:
- Principal
- Interest
- Property taxes
- Homeowners insurance
- Mortgage insurance (if applicable)
Taxes and insurance are not controlled by your lender. When they rise, your payment increases - even if your loan terms stay exactly the same.
How Property Tax Increases Affect Your Mortgage Payment
Property taxes are assessed by local governments and are often based on the market value of your home. When values rise - or tax rates change - your tax bill increases.
New homeowners are especially vulnerable because many counties reassess property value after a sale. If the home was previously assessed at a lower value, the first post-purchase tax bill can be significantly higher.
When taxes rise, your lender updates your escrow requirement, which raises your monthly payment.
Why Homeowners Insurance Premiums Increase Over Time
Homeowners insurance premiums have risen sharply in recent years due to higher rebuild costs, inflation, climate-related losses, and regional risk reassessments.
- Rising construction and labor costs
- Increased storm, fire, and flood risk
- Insurance company underwriting changes
Even if you never file a claim, premiums can increase annually - and those increases flow directly into your escrow payment.
What an Escrow Account Is and How It Adjusts Your Payment
An escrow account collects a portion of your monthly payment to cover property taxes and insurance when they come due. Once per year, your servicer performs an escrow analysis.
If upcoming tax or insurance bills are higher than expected, your required monthly escrow contribution increases - raising your total payment.
Escrow Shortages vs Payment Increases
An escrow shortage happens when your account didn’t collect enough to pay past bills. This creates a one-time deficit.
Your lender may allow you to:
- Pay the shortage as a lump sum
- Spread it across 12 months (raising payments temporarily)
Real-World Examples of Payment Increases
A homeowner with a $2,000 monthly payment might see:
- $150/month increase from property tax reassessment
- $75/month increase from insurance renewal
- $90/month escrow shortage recovery
Suddenly, the payment jumps by over $300 - without any rate change.
Can You Lower Property Taxes or Insurance?
You may be able to appeal your property tax assessment or shop for lower insurance premiums. Neither is guaranteed, but both are worth reviewing annually.
How to Plan for Increases Before You Buy
Smart buyers plan for increases before closing. Start with realistic projections instead of lender maximums.
Useful tools:
For a complete framework, visit Home Buying Process & Affordability.
What to Do After Your Mortgage Payment Increases
Review your escrow statement carefully, update your budget, and build buffers for future increases. Payment changes are normal - panic isn’t.
Frequently Asked Questions
- How often does escrow change? Usually once per year.
- Can my lender raise my payment without notice? No - escrow statements are required.
- Do taxes and insurance always increase? Not always, but historically they trend upward.
Stress-Test Your Payment Before It Stresses You
Plan for rising taxes and insurance now - not after your payment jumps.