Thursday, January 23, 2020

Fixed-rate Payments Change

Deciding between a fixed-rate mortgage and an adjustable-rate is one of the choices buyers make when getting a loan to purchase a home.  While the rate remains constant for the term of the mortgage on a fixed-rate loan, it does not mean that the payment will remain the same.

Most lenders require borrowers to include the monthly amount of the property taxes and insurance with each principal and interest payment.  The lender wants to be certain that the taxes are paid, and that the property is insured to protect their collateral for the loan.

The funds are held in escrow so they can be paid when they are due.  Periodically, the lender will audit the escrow account to see if there is enough money available.

If the taxes or insurance increase, the total payment will have to increase to cover the additional expense.  Once the lender determines there is not going to be adequate funds to pay the taxes and insurance, they can give the borrower the option to deposit additional funds to cover the shortage in the escrow account.

The borrower may choose instead to pay a higher payment that will accumulate by the time the expenses are due to equal the amount.

It is worth verifying the taxes and insurance premiums to see that the lender is using the correct amounts in case a mistake has been made.

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