mortgage loan

by Aidan Kang, CFA
Senior Writer
UPDATED: September 06, 2023

Navigating the ever-changing landscape of home financing can be a daunting task for any homeowner. Year after year, mortgage payments tend to fluctuate, leaving many wondering why mortgage payments go up. 

In this informative article, you'll delve into the reasons why mortgage payments can increase and how you can master these yearly changes in your mortgage. Understanding these factors is crucial to maintaining financial stability and securing your home. 

The Dynamic Nature Of Mortgage Payments 

Mortgage payments are not set in stone. They can vary from year to year, impacting your budget and financial planning. Several factors contribute to these fluctuations, and it's essential to be well-informed about them. 

  1. Interest Rate Adjustments 

One of the primary reasons why mortgage payment go up is interest rate adjustments. Most mortgages, especially adjustable-rate mortgages (ARMs), are tied to interest rates that can change over time. When the interest rates increase, the cost of borrowing money goes up, leading to higher monthly mortgage payments. 

Interest rates are influenced by various economic factors, including the Federal Reserve's policies, inflation rates, and market conditions. For instance, if the Federal Reserve decides to raise interest rates to combat inflation, your adjustable-rate mortgage may see an increase in your monthly payments. This can catch many homeowners off guard if they are unprepared for these fluctuations. 

To mitigate the impact of interest rate adjustments, homeowners should regularly monitor the mortgage market and consider refinancing to a fixed-rate mortgage if they anticipate rising interest rates. 

  1. Escrow Account Adjustments 

Another factor that can cause mortgage payments to increase is adjustments to your escrow account. Your lender establishes an escrow account to cover property taxes, insurance, and other related expenses. Typically, you pay a portion of these expenses and your monthly mortgage payment. 

Escrow account adjustments occur when the costs of these expenses rise due to increased property taxes or higher insurance premiums, leading to an increase in your monthly mortgage payment. 

  1. Changes In Property Value 

The value of your home can also have an impact on your mortgage payments. If the value of your property increases significantly, it may trigger an increase in property taxes. Thus, higher property taxes can increase your monthly mortgage payment, as mentioned earlier with escrow account adjustments. 

It's essential to keep track of your property's assessed value and be prepared for potential increases in property taxes. You can challenge the assessment if you believe it's inaccurate, but staying informed about local tax regulations and possible changes is crucial. 

  1. Changes In Homeowners Insurance 

The homeowners insurance premium is another element that can affect your monthly mortgage payment. Insurance rates can rise due to various factors, including increased claims in your area or changes in your policy. 

To manage this, review your insurance policy annually and shop around for competitive rates. You can often find ways to reduce your premium without sacrificing coverage. 

  1. Changes In Homeowners Association Fees 

Another factor that can contribute to changes in your monthly mortgage payments is adjustments in homeowner's association (HOA) fees. If your property is part of the HOA, you must pay regular fees to cover maintenance and community amenities. 

HOA fees can increase over time due to various factors, such as rising maintenance costs, repairs, improvements to the community, or simply inflation. When the fees increase, your lender may adjust your monthly mortgage payment to ensure that these expenses are covered within your escrow account. 

To manage these changes, staying informed about your financial health and any potential fee increases is essential. Participating in HOA meetings and reviewing their financial reports can help you anticipate and plan for changes in these fees. 

  1. Length Of The Loan Term 

The length of your mortgage loan term can also influence changes in your monthly payments. Most mortgages have fixed terms, with 30-year and 15-year loans being the most common. If you refinance or take out a new mortgage with a different term length, your monthly payments will adjust accordingly. 

For example, a 15-year mortgage typically has higher monthly payments than a 30-year one because you pay off the loan in a shorter period. Conversely, a longer-term mortgage may have lower monthly payments but result in more interest paid over the life of the loan. 


Mastering yearly mortgage changes in home financing is essential for homeowners looking to maintain financial stability. Understanding why mortgage payments go up, such as interest rate adjustments, escrow account changes, property value fluctuations, insurance adjustments, and the loan term, empowers you to make informed decisions. 

To navigate these fluctuations successfully, stay vigilant, budget wisely, and consider refinancing or adjusting your insurance policy as needed. By proactively managing these factors, you can confidently ride the waves of home financing and ensure your home remains a secure and stable investment for years to come.