Why Your Fixed-Rate Mortgage Payment Will Go Up

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September 9, 2021

Why Your Fixed-Rate Mortgage Payment Will Go Up

Many homebuyers have heard that a benefit of buying a home is a fixed housing cost. If you take out a fixed-rate mortgage, it is true that the combined amount of your mortgage interest and principal amount will remain steady for as long as the loan is in place. However, your mortgage payment and your overall housing expenses can increase over time. By understanding all of the factors that impact your housing expense, you can make financially savvy decisions.

Property Taxes
In Illinois, the state’s property tax rate is the second-highest in the U.S. The actual tax rate may remain fairly steady from year to year, but your home’s value can and likely will increase over time. Keep in mind that your total property tax liability will be determined by both the home’s value and the tax rate. Does your mortgage payment include escrows for property taxes and insurance? If so, you can expect this component of your mortgage payment to increase in the years ahead.

Property Insurance
Likewise, your property insurance premium can increase over time. The good news is that you may be able to mitigate the increase slightly by taking a few steps. For example, you can shop around from year to year to ensure that you never overpay for the coverage you need. You can also consider adjusting your deductible amount. Your deductible should always be affordable for you to pay within a short period of time. After all, in the event of a worst-case scenario, you need to be able to access your home insurance coverage. A smart way to take advantage of a higher insurance deductible without the risks is to simply increase the balance in your savings account accordingly.

Other Housing-Related Expenses
Your actual mortgage payment is also referred to as your PITI payment. The acronym stands for principal, interest, taxes and insurance. While the property taxes and insurance components of your mortgage payment can increase, other housing-related expenses outside of your mortgage payment will also increase over time. For example, your HOA dues and your property maintenance costs likely will trend upward over the years. Keep in mind that property maintenance and repair needs may become more pressing as your house ages. This means that the cost of a home service can increase over time, and you may need to pay for these services more frequently.

What can you do to prepare yourself financially for these rising expenses? In many cases, the cost of rising HOA fees, property taxes and insurance will be offset by the average person’s rising income level over the years. To prepare for higher maintenance and repair expenses, consider increasing your savings account balance gradually from year to year.