Why Did My Mortgage Go Up 2023?

Mortgage rates have been rising in recent weeks. High inflation, a strong economy, and policy changes from the Federal Reserve have all contributed to this increase.

If the Fed can reduce inflation and avoid a recession, mortgage rates may begin to decline this summer. However, it’s important to understand why mortgage rates are currently so high before you make any assumptions about when they will fall.

Changes in Your Property Taxes or Homeowners Insurance

One of the most common reasons that mortgage payments increase is because of increases in property taxes or homeowners insurance. These costs are often included in your mortgage payment through an escrow account that covers them over the course of the year. If these accounts are running low and need to be replenished, your mortgage goes up.

It’s important to check your monthly statement to see how much is being paid into escrow and to make sure that you are paying enough to cover the property taxes and homeowners insurance. If you’re not, your mortgage servicer will run an escrow analysis and may raise your mortgage payment accordingly.

In some cases, the property tax change could be because your home was reassessed by the city or township. In this case, your property taxes will be raised based on the new taxable value and millage rate in place. In other cases, the change might be because you lost property tax exemptions that were previously available to you.

Many potential home buyers experience “payment shock” when they discover that their property tax bill will be dramatically higher than they thought it would be. It’s not uncommon for potential buyers to back away from a deal after they realize that the home they want will be unaffordable based on their increased property tax bill.

Changes in Your Interest Rate

Interest rates are influenced by a wide range of factors, including the overall economy, monetary policy (to some extent), and inflation. However, mortgage rates are mainly impacted by the bond market. During periods of financial turmoil, the bond market becomes less liquid and funding costs for lenders increase. This causes mortgage rates to go up.

Mortgage interest rates are expected to continue rising throughout 2023. This is because the Fed is still trying to tame inflation. However, if inflation begins to slow and the economic outlook improves, mortgage rates may begin to fall.

Your specific interest rate will depend on a variety of factors, such as your credit score, down payment and debt-to-income ratio. You can also find a better deal by shopping around with local and national banks, credit unions and online lenders.

The best time to buy a home is when you’re financially ready and can afford the monthly payments, regardless of interest rates. Since rates are highly volatile, it’s hard to predict where they will be in the future. However, some experts expect mortgage rates to decline over the long term. They could drop as soon as this summer if the Fed can successfully reduce inflation to its target level of 2%. In addition, a recession typically causes rates to decrease because it discourages borrowing and spending.

Changes in Your Escrow Account

Most borrowers have an escrow, or impound, account that covers expenses like property taxes and homeowners insurance. These fees are collected each month along with the mortgage payment and held in an escrow account managed by the lender or third party. When these bills are due, the servicer will pay them on your behalf using money from the escrow account.

These accounts are meant to help you avoid large, lump-sum payments for these expenses. However, it’s not uncommon for a homeowner to have a shortage in their escrow account. There are a few reasons why this may occur. For example, if your home is newly built, the county might reassess it for tax purposes and increase the total value of the property. This will result in an escrow shortage since your previous assessment only included the land value and not the new, higher amount.

Another reason for an escrow shortage might be a change in homeowners insurance fees. Your servicer will recalculate your monthly payments on an annual basis and if the insurance costs increase, you could see your escrow balance decrease.

If you’re worried about an escrow shortage, you can talk to your lender about adding extra funds into the account. Each servicer has its own rules and requirements on how much money it will accept, but many lenders do offer this option.

Changes in Your APR

Mortgage rates are still hovering near decade highs. The good news is that a more stable macroeconomic environment could bring them down later in 2023. But until then, potential homeowners should focus on boosting their credit scores and paying down debt to get the best rates possible.

Even small changes in interest rates can make a big difference in your monthly payments. That’s why it’s important to understand what causes mortgage rates to go up and down, so you can be prepared.

There are several things that can cause your mortgage rate to change, including rising inflation, aggressive Fed policies and geopolitical events. It’s impossible to know exactly what will happen with rates, which is why mortgage pros recommend buying when you’re ready and can afford it rather than trying to time the market.

In the spring of 2022, a combination of rising inflation and a resilient economy prompted mortgage rates to jump. They’ve since been climbing higher, fueled by concerns that the Fed will need to continue hiking rates. In addition to rising rates, recent changes in fees charged by Freddie Mac and Fannie Mae are also pushing up mortgage costs. Those new fees, called loan level price adjustments, are designed to help reduce the risk of mortgages bought by the two government-sponsored enterprises and repackaged for investors.

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