Why did my mortgage payment go up $400?

What $400 a month actually is

Four hundred dollars a month is $4,800 a year. At this size, suspect a stacked year: the base tax and insurance deposit is rising, and the account is also climbing out of a hole created by last year's low estimate. The statement's projection is the only place those two moves are visible together.

Over a year, $400 is $4,800. That annual figure is the one to match against a tax bill or an insurance premium, because those bills arrive once or twice a year and escrow turns them into a monthly deposit. Principal and interest on a fixed-rate loan does not produce a sudden $400 step-up. If the rate on the statement is unchanged, stop looking at the rate.

A worked example

Last year the servicer estimated taxes at $4,000. The real bill was $6,200, and insurance ran $200 over the estimate as well. The account finished short. This year the base uses the real bills, $6,200 of tax and $2,000 of insurance, or $683 a month. A remaining shortage of $2,400 over 12 months adds $200. If last year's deposit was $483, the increase is about $400. Part of that $400 is the true ongoing cost. Part of it is catch-up.

Where to look on the statement

Separate the new monthly base from the shortage installment. The base is what you should expect next year if the bills stay put. The installment should end. Then look at the lowest projected balance. Under aggregate accounting, that low point may include a cushion of up to one-sixth of annual disbursements, which is two months of the base escrow payment, not two months plus the shortage. 12 CFR § 1024.17(c)(5) and (d) describe that cap. A low point of three or four months of escrow is a reason to ask for the trial balance.

The annual escrow account statement has two jobs: a history of what was paid, and a projection of what will be paid. The payment change lives in the projection. Bring the insurance declarations page and the tax bill to the same table. A line that does not match those documents is the line to ask about, even when the monthly total is a round number like $400.

The mistake this amount invites

The painful error is paying the catch-up and the ongoing increase without noticing you are also funding a cushion above the cap. Another error is assuming the entire $400 is permanent and cutting other bills you did not need to cut. Write the base and the shortage in two columns. Only the base belongs in next year's budget until a new analysis says otherwise.

What to do this week

You can do this with the payment explainer or on paper. The goal is a split of the $400 that names a document for each dollar, then one action for each document.

• Compute the new base: this year's tax plus insurance, divided by 12.
• Subtract that base from the new escrow deposit. The remainder is shortage, deficiency, or cushion-related collection.
• If the stated cushion is more than one-sixth of this year's disbursements, ask for a corrected analysis before you treat $400 as the new normal.

Questions people ask about this

Sources

• 12 CFR § 1024.17, Escrow accounts (Regulation X)
• CFPB: What should I do if I have problems with my escrow account?