Why Do My Mortgage Payments Go Up Every Year When I Have Fixed Rate Loan?

Fixed Rate, Variable Costs: The Escrow Effect on Your Mortgage

If you’re a homeowner, you may be surprised when your mortgage payment increases—even though you have a fixed-rate loan. Shouldn’t the payment stay the same?

Here’s the short answer: your principal and interest stay fixed, but your escrow payment doesn’t. And that’s where the increases come from.

Let’s break down why this happens, and how you can manage it.

What Is Escrow?

When you make a mortgage payment, you’re paying more than just the loan itself. Most fixed-rate mortgage payments are made up of:

• Principal – Pays down your loan balance
• Interest – The cost of borrowing the money
• Escrow – Covers your property taxes and homeowner’s insurance

Your lender collects the escrow portion each month, holds it in a special account (escrow account), and pays your tax and insurance bills when they come due.

While your loan amount and interest rate are locked in, taxes and insurance costs can change every year, which affects how much your lender collects for escrow.

Why Do Mortgage Payments Increase?

In most cases, the reason for an increase is related to property taxes and insurance premiums, which often rise over time.

Property Taxes Go Up

Local governments reassess home values and adjust tax rates regularly. If your home increases in value, or if your township or school district raises taxes, your property tax bill will go up. This forces your lender to increase your escrow payments to keep up.

Homeowner’s Insurance Premiums Rise

Insurance premiums can increase for several reasons:

• Inflation and higher construction costs
• More frequent natural disasters (floods, fires, storms)
• Changes to your policy or coverage levels
• Local risk adjustments (e.g. higher crime or weather risk)

These increases are passed through to your escrow account and affect your monthly payment.

How Escrow Changes Lead to Payment Adjustments

Lenders conduct an annual escrow analysis to compare what they collected vs. what was actually paid out for taxes and insurance.

Here’s how that impacts you:

• If there’s a shortage, your lender will raise your escrow payment
• If there’s a surplus, you may get a refund—or see a temporary payment reduction
• Most lenders offer two options if there’s a shortage:
  • Pay it as a lump sum
  • Or spread it out by increasing your monthly payment

What You Can Do to Manage Escrow Increases

Although you can’t always avoid escrow increases, there are steps you can take to better manage your mortgage payments and anticipate potential changes:

Stay Informed on Local Tax Trends

Check with your local tax assessor’s office to see when reassessments happen and how tax rates are set. This can help you anticipate increases.

Shop Around for Homeowner’s Insurance

If your insurance premium goes up significantly, compare quotes from other insurers. You might find a better rate with the same coverage.

Maintain Your Property

A well-maintained home may qualify for lower premiums. Address risks like old roofs, outdated electrical systems, or missing safety features.

Budget for Escrow Adjustments

Since increases in property taxes and insurance premiums are common, it’s wise to budget for a potential increase in your mortgage payment each year. Building this into your financial planning can help you absorb any adjustments without disrupting your budget.

Consider Paying Shortages Upfront

If your lender gives you the option, paying an escrow shortage as a one-time lump sum can keep your monthly payment lower.

About Us

At Innovative Mortgage Brokers, our mission is to make the mortgage process as clear and straightforward as possible. With years of industry experience and a commitment to client satisfaction, we specialize in helping borrowers navigate their mortgage journey with ease, offering tailored solutions for both residential and small commercial properties. Based in Pennsylvania and also licensed in Florida, our team is dedicated to providing transparent, responsive service that prioritizes your goals and financial needs.

We believe in educating our clients every step of the way, ensuring you understand not only the mortgage products available but also the factors that can impact your payments over time. By working with a wide network of trusted lenders, we’re able to match you with competitive loan options designed to meet your specific circumstances, whether you’re a first-time homebuyer, a seasoned investor, or a business owner seeking commercial property financing.

At Innovative Mortgage Brokers, we’re more than just your mortgage advisors – we’re your partners in building a secure financial future. Reach out today to see how our expertise, dedication, and personalized approach can make a difference in your mortgage experience.

Final Thoughts

While it may feel frustrating to see your mortgage payment go up every year, understanding the reasons behind these increases can help you plan and manage your finances more effectively. Escrow accounts are a valuable tool that helps homeowners budget for property taxes and insurance premiums, but they also reflect the reality of rising costs over time.

If you’re concerned about your mortgage payment or have questions about your escrow account, reach out to our team at Innovative Mortgage Brokers. We’re here to guide you through the ins and outs of your mortgage and provide strategies to make homeownership as stress-free as possible. By understanding the factors that impact your mortgage payment, you can feel more confident and prepared to manage the financial side of owning a home.

Updated 8/3/25