It's true that your mortgage payment can increase, even if you have a fixed-rate mortgage. Property taxes and homeowners insurance are two of the most common reasons for increasing your mortgage payment. These funds are held in an escrow account included with your mortgage payment, which is sometimes required by mortgage investors.
Adjustable-rate mortgages(ARMs) can save borrowers a lot of money in short- and medium-term interest rates, but when it's time for the interest rate to be restored, you may be facing a much higher monthly mortgage bill.
If you're like the vast majority of Americans, an increase in the amount you pay each month is likely to be difficult to swallow. First, you don't have to worry about getting into trouble with your tax authority or insurance company, because whatever amount you owe, your mortgage lender will pay it instead. With a fixed-rate mortgage, your principal and interest payment may not change, but if you have an adjustable-rate mortgage (ARM), the rate changes after a certain number of years. ARMs generally start with lower interest rates than fixed-rate mortgages, although this changes once the rate begins to adjust.
Mortgage rates will increase another 0.25% to 0.375% through July and stabilize at around 6.5 percent. This tax increase is reflected in the new escrow amount in the monthly mortgage statement and this amount is the payment amount of the new mortgage until next year, when another review will take place. To get an idea of what awaits you with an adjustable-rate mortgage, you first need to understand how the product works. If you reach a certain amount of principal, or if your mortgage insurance has been paid for a certain period of time, you may no longer have to pay it.
It might also be good to refinance if you can switch from an adjustable-rate mortgage to a low-fixed-rate mortgage; refinance to get rid of FHA mortgage insurance; or switch to a 10- or 15-year short-term mortgage to pay off your loan early. If you have an FHA or Department of Veterans Affairs (VA) mortgage, the interest rate adjustment is based on the 1-year Constant Maturity Treasury (CMT). Keep in mind that mortgage insurance is not the same as mortgage protection insurance (MPI), which is a policy that ensures that mortgage payments to the lender continue to be made in the event that a homeowner dies. In many cases, for homeowners with fixed-rate mortgages, the principal and interest portions of their monthly mortgage payments still have some form of stability over the life of their loan.