What’s actually in my mortgage payment?
Two main pieces:
- Principal and interest. On a fixed-rate loan this amount stays the same for the life of the loan.
- Escrow. Your servicer collects a monthly share of your property taxes and homeowners insurance, and pays those bills when they’re due.
If the total went up and you have a fixed rate, look at escrow first. It’s the moving part.
How does the escrow review work?
Federal rules under RESPA set the basics. Once a year, your servicer looks at what it paid out for taxes and insurance and what it expects to pay next year. Then it resets your monthly escrow.
A few rules worth knowing:
- The servicer can hold a cushion of up to one-sixth of the year’s escrow payments. That’s about two months.
- You get an annual escrow statement within 30 days after the end of the escrow year.
- If there’s a surplus of $50 or more, it has to be refunded within 30 days, as long as you’re current.
- If there’s a shortage, you’ll be asked to make it up. More on that below.
So when taxes go up, your payment usually goes up twice. Once to cover the higher bill going forward, and once to repay the shortage from the year the account came up short.
Why did my Texas property taxes go up?
Texas has no state property tax. Your taxes are local. They come from your appraised value and the tax rates set by your school district, county, city, and any special districts. Any of those can move.
The usual suspects:
Your value went up
Appraisal districts value your home as of January 1 each year. If the market went up, your value can too. If you have a homestead exemption, the taxable value can’t rise more than 10% a year, unless you added something like a room or a pool. If you never filed the homestead, there’s no cap. Here’s how to file one.
Tax rates changed
Each taxing unit sets its own rate every year. Your appraisal district doesn’t set rates and neither does your lender.
The seller’s exemptions went away
When you buy, the escrow estimate is often based on the prior year’s tax bill. Federal rules allow that. But that bill was the seller’s. If the seller had exemptions, like an over-65 exemption with a school tax ceiling, those don’t carry over to you. You have to apply for your own. So the first full bill in your name can be a lot higher than the one used to set up your escrow.
You bought a new build
This one catches people in new neighborhoods around Aledo and west Fort Worth.
The appraisal district values property as of January 1. If your house wasn’t finished on January 1, that year’s tax bill may only reflect the land or a partly built house. The next year, the finished house is on the roll at full value.
Federal rules let the servicer estimate taxes on new construction that hasn’t been assessed yet, using similar homes nearby. If that estimate came in low, the first escrow review catches up, and it can be a big jump.
When I set up a loan on a new build, I want you to know what the full tax bill could look like, not just the lot bill. Ask about it before you close. If you’re building, my construction loan page covers how that loan works.
Insurance went up
Homeowners insurance premiums change at renewal. If your premium went up, so does escrow. Your insurance agent can tell you why and whether there are options.
What are my options for an escrow shortage?
RESPA spells out what the servicer can do.
- Shortage of at least one month’s escrow payment: the servicer can leave it alone, or spread the repayment over at least 12 months. It can’t make you pay it all within 30 days.
- Shortage of less than one month’s escrow payment: the servicer can leave it alone, ask you to pay it within 30 days, or spread it over at least 12 months.
Ask your servicer whether you can pay the shortage in one lump sum. If they allow it, your monthly payment won’t go up as much.
What can I do to bring the payment down?
- File your homestead exemption if you haven’t. It takes value off and caps future increases.
- Protest your appraised value if it’s too high. The deadline is in the spring, printed on your notice. Here’s how.
- Shop your homeowners insurance with your agent.
- Ask your servicer for a new escrow analysis after your taxes drop, so the lower bill shows up in your payment sooner.
What won’t fix it: a refinance by itself. Your taxes and insurance are the same no matter who holds the loan. A refinance changes the loan. If you’re looking at a Texas cash-out refinance for other reasons, the escrow will be set again at closing based on current bills.
How do I read my escrow statement?
Look for three things:
- What the servicer paid last year for taxes and insurance.
- What it expects to pay next year.
- The shortage or surplus, and how it’s being repaid or refunded.
Compare the tax line to your actual tax bill from the county tax office. If something looks wrong, call the servicer and ask them to walk you through it.
I’m not your servicer and I can’t change your escrow. But if you want a second set of eyes on the statement, send it to me or call 817-873-6288. For questions about the tax bill itself, check with your appraisal district or county tax office.