Buyer Beware: Mortgage Payments CAN Fluctuate Even for a Fixed Rate Loan

Several of our Buyers have experienced fluctuating monthly mortgage payments due to their escrow (impound) account, even on 30-year fixed rate loans. In our attached real-life example on a 30-year fixed loan, our Buyer's payments started at $6,337.41/month right after closing, and then were decreased by the mortgage servicer to $5,995.05/month several months later, and then were increased to $6,951.28/month a few months later. All Buyers obtaining financing need to be prepared financially for this scenario.     

Home Buyers more than likely have?an escrow account?(also known as an impound account) with their mortgage servicing company. The money in the escrow/impound account comes from a portion of the Buyer’s monthly mortgage payments. In addition to paying principal and interest, a Buyer makes payments towards the cost of property taxes and insurance each month, and then the Buyer’s mortgage servicer pays the property tax and insurance bills on the Buyer’s behalf when they come due.

Each year, mortgage companies perform an escrow analysis to make sure the escrow portion of the Buyer’s monthly payment is enough to pay property taxes and insurance premiums. This analysis also confirms a minimum escrow account balance is maintained, if that is a requirement for the Buyer’s loan product. Escrow accounts may reflect a surplus (too much money in the escrow account resulting in a refund to the Buyer) or a shortage (not enough money to pay property taxes and insurance resulting in additional funds due from the Buyer). Both instances can potentially result in a change of a Buyer’s monthly mortgage payment and/or a refund, even for 30-year fixed rate loan products.

Several months after closing, a Buyer could potentially receive a large refund check and a reduced monthly mortgage payment from their mortgage servicer… WHICH SOUNDS TOO GOOD TO BE TRUE, BECAUSE IT IS! Unfortunately, California counties are typically 6-10 months behind on updating property tax records. During this time, mortgage servicers must audit a Buyer’s escrow account. If the audit shows a non-updated lower tax rate from the prior owner, the lender will send the Buyer a refund check AND potentially reduce the Buyer’s future payments due to a “lower property tax obligation”. A Buyer’s escrow account can show a surplus as well due to the Supplemental Property Tax bill paid separately from the monthly mortgage payments. DO NOT BE FOOLED. An escrow account should have been set up correctly during the property purchase stage. This money will eventually need to go back to the mortgage servicer, and a Buyer’s payment can adjust higher again based on the correct property tax rate. SAVE THE REFUND CHECK MONEY and call the loan servicer directly to discuss the escrow account if a refund check or reduced monthly payment occurs.

In Team Whitney’s client's situation above, here is the order in which events occurred, and similar situations have happened for some of our other clients as well:

1. June 2021 - When the property was purchased, our Buyer's initial monthly payments on a 30-year fixed loan were $6,337.41/month.

2. April 2022 - Buyer paid part 1 of the Supplemental Property Tax bill for $1,832.83.  

3. June 2022 - Mortgage servicer refunded Buyer $6,162.44 in the form of a refund check in the mail.

4. August 2022 - Buyer's payments went down to $5,995.05/month.

5. August 2022 - Buyer paid part 2 of the Supplemental Property Tax bill for $1,832.83.

6. June 2023 - Buyer's payments went up to $6,951.28/month.

7. March 2024 - Buyer's payments are still at $6,951.28/month.

For more information or to set up a personal consultation, please contact Danielle Whitney Moore with Team Whitney (Keller Williams Realty L.A. Harbor) at (310) 987-9103.