My Mortgage Payment Increased by More Than $200 per Month: Here’s What I Did
The typical monthly mortgage payment amount is roughly $2,300, according to the National Association of Realtors. But even if your mortgage payment is lower, an unexpected increase in how much you pay each month could result in financial stress or pressure on your budget. This is especially likely if you’re already living at the top of your means or if the new payment amount is significantly higher than it was before.
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Of course, if you’re prepared for emergencies and surprise expenses, you might not be as stressed out financially if your mortgage does increase. But still, having a larger monthly payment can get in the way of other financial goals — like preparing for retirement or saving up for a child’s college education.
Regardless of your financial or personal circumstances, suddenly having to pay more for your mortgage is less than ideal. GOBankingRates reached out to Tarek El Ali, founder of Smart Insurance Agents — a one-stop shop for all insurance plans — and a homeowner who experienced a mortgage payment increase to get his story. Here’s what he said.
My Mortgage Payment Increased From $2,500 to $2,740
Tarek El Ali was originally paying $2,500 a month for his mortgage until it increased to $2,740 a month. This is roughly a $240 increase — or $2,280 a year.
“Inflation caused the escrow to increase, county taxes went up and home insurance went up,” he said when asked why his monthly mortgage payment increased.
“The increase in my mortgage payment was primarily attributed to a rise in home insurance rates and an adjustment in the escrow amount allocated for county taxes,” he added. The increased costs in these areas directly impacted my overall mortgage payment.”
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Handling the Unexpected Mortgage Payment Increase
When dealing with a sudden or unexpected increased mortgage payment, it’s important to take a moment and assess your situation and options before making any decisions. Depending on what you choose to do, the financial impact of the increased payment amount might not be as significant as you initially thought.
Here’s what Tarek El Ali did to deal with the higher mortgage payment: “In response to the increased mortgage payment, I took a few steps to manage the financial impact. Firstly, I revised and increased my monthly savings budget to accommodate the higher payment. Additionally, I proactively cut down on miscellaneous expenses to create more room in my budget. This combination of increased savings and expense reduction allowed me to effectively handle the rise in my mortgage payment while maintaining financial stability.”
Did the Mortgage Payment Increase Lead to a Financial Strain?
A significant mortgage payment hike can cause major financial stress for many homeowners. Fortunately, this wasn’t the case in Tarek El Ali’s household.
“The increase didn’t pose a significant financial strain since we had recently paid off other personal loans,” he said. “This allowed me to be flexible with the additional payment toward the mortgage. Additionally, I allocated an extra $300 per month toward the principal to reduce overall interest paid, granting me increased flexibility.”
Ways To Deal With a Sudden or Significant Mortgage Payment Hike
If your mortgage payment has suddenly increased, here are some things you can do:
Revise your monthly budget. Like Tarek El Ali, one of the first steps is to evaluate your budget. Review your fixed and variable expenses alongside your income and see if there are areas in which you can cut costs. If you can cut back on a few things, you can use that extra cash to deal with the increased mortgage payment.
Consider refinancing your mortgage loan. Mortgage refinancing often allows you to get a lower interest rate and reduces your monthly payments in exchange for a longer term. It may come with additional closing costs, however. It can also extend the repayment term, which could mean paying more in overall interest.
Speak openly with your lender. If you’re struggling to keep up with the new monthly payment, be upfront with your lender. Depending on your lender, you might be able to change the terms of your loan. This could mean lowering the interest rate, reducing how much you pay each month, postponing a payment or two, or extending the repayment term. Some of these options could end up costing you more in the long run, so be aware of this.
Pay only the minimums on other debts. If you have credit card debt, consider paying only the minimums due until you get your finances in order again. Once you can comfortably pay the higher mortgage amount, you can then resume making larger payments on your other debts.
Another option is to make smaller payments twice a month rather than one large payment once a month. This can help you stay on top of your payments. It might even help you pay down your mortgage faster, depending on how you set it up.
“Pay biweekly instead of monthly,” Tarek El Ali said. “This is what I did. I set up the payment with Chase where $1,370 is auto deducted biweekly. This lowers the interest paid by the end of the year, and in the long run. [Using] this math, I should be able to pay off my mortgage in 25 years instead of 30.”
Common Reasons Why Your Mortgage Payment Might Increase
Mortgage payments fluctuate for many reasons, such as:
Rising interest rates: If you have an adjustable-rate mortgage, your rate could increase with market changes. Even if you have a fixed-rate mortgage that prevents your interest rate from rising, you could still end up with a higher monthly payment for other reasons.
Higher property taxes or insurance premiums: Homeowners insurance premiums and property taxes can also rise or drop over time, typically due to rising inflation rates.
Refinancing: Many homeowners refinance their mortgages with the goal of paying less each month or securing a lower interest rate. However, refinancing your loan could also result in a shorter repayment term. This means you can pay off the loan early, but your monthly payments will typically be higher.
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This article originally appeared on GOBankingRates.com: My Mortgage Payment Increased by More Than $200 per Month: Here’s What I Did
