6 Ways Your House Payment Can Change Even With a Fixed-Rate Mortgage

Many homebuyers assume that choosing a fixed-rate mortgage will guarantee a stable monthly payment for the life of their loan. However, while the principal and interest portion of your mortgage payment will indeed stay the same, there are several other factors that can cause your monthly housing costs to fluctuate over time.

These factors are often out of your control, but if you enter into homeownership expecting them, you can mitigate any unwelcome payment-related surprises. Understanding these variables and how they can affect your payment is crucial for accurately budgeting for homeownership.

1. Property Taxes

Property taxes are one of the most common factors that can cause your monthly payment to increase, even with a fixed-rate mortgage. Local governments periodically reassess property values, and if your home's value increases, your property taxes may increase as well. As your annual property taxes are typically paid for through your monthly escrow payment to your mortgage servicer, this means that, even though your mortgage payment is fixed, your total monthly payment could go up.

In some states, such as Florida, there are protections like the homestead exemption that place an annual cap on how much your property taxes can increase from year to year. However, not all states have such protections. For example, Virginia has no cap on property tax increases, so homeowners can experience significant increases in taxes as the market fluctuates.

While there are some rare cases in which homeowners may be able to successfully appeal their property taxes or get them reduced, it is far more common for property taxes to go up rather than down.

2. Homeowner’s Insurance

Much like auto insurance, home insurance companies adjust their rates annually, and the amount you pay could increase based on a variety of factors.

If you live in an area prone to natural disasters, such as California or Florida, you may face even higher increases due to the frequency of claims made after events like wildfires or hurricanes. In areas where building costs are rising, insurance premiums could also rise as companies adjust rates to cover the increasing cost of rebuilding and repairing damaged homes.

Even if you don’t live in a high-risk area, it is typical for insurance premiums to increase slightly each year. In some cases, homeowners may be able to shop around for a better deal on insurance, but that isn’t always an option. Many buyers find that, even with careful research, their premiums continue to rise.

3. Homeowners Association (HOA) & Special Tax District Fees

If your home is part of a homeowner’s association (HOA), a condominium association, a community development district (CDD), a special tax district, or a similar entity, you will likely be subject to additional fees that can impact your overall monthly payment.

These entities are responsible for managing and maintaining community amenities and infrastructure, such as parks, common areas, and swimming pools. They may also manage the general upkeep of the neighborhood like landscaping, and may cover the cost of utilities like water, gas, and internet access.

HOAs are also responsible for ensuring that the community remains well-maintained and if there is a major expense such as replacing a roof on a community building or repairing a broken gate, they can levy special assessments on homeowners to cover that cost. These assessments can be a lump sum payment or spread out over several months or years.

Furthermore, HOAs often have to raise fees to account for inflation or rising service costs. For example, if the company that maintains the community pool increases their fees for cleaning services and chemical supplies, the HOA may pass this additional cost on to homeowners by raising HOA fees. And if the HOA decides to increase services or amenities, such as adding a gym or improving security, this can also drive up fees.

It’s important to check the current, past, and future HOA budgets to look for clues as to whether a new or increased fee is on the horizon. But, unfortunately, there is no way to guarantee you won’t be hit with an increase.

4. Special Assessments

Homeowners may also be subject to special assessments levied by local municipalities or special districts. Special assessments are typically used to fund community infrastructure projects, such as road repairs, utility upgrades, or the installation of new services like fiber-optic internet. While special assessments are not common, they can significantly impact your housing costs if they are imposed.

For example, if your local government decides to update the sewer system in your area, homeowners may be required to pay a special assessment to fund the project. These assessments are typically spread out over a period of several years, and homeowners are responsible for paying a portion of the cost.

5. Private Mortgage Insurance (PMI)

If you put down less than 20% of the purchase price when buying a home with a conventional loan, you will likely be required to pay private mortgage insurance (PMI). PMI is an additional cost that protects the lender in case you default on your loan. This cost is typically rolled into your monthly mortgage payment, meaning that your overall payment will include both the loan principal and interest as well as PMI.

PMI costs vary depending on your loan-to-value (LTV) ratio, but it can add a significant amount to your monthly payment. For example, a 1% PMI rate on a $400,000 loan could cost you $4,000 a year, or about $333 a month.

The good news is that once your loan balance reaches 78% of the home’s value (usually through a combination of paying down the loan and home appreciation), PMI should automatically drop off. You can also request the removal of PMI once your LTV reaches 80%. Removing PMI can result in a noticeable reduction in your monthly payment.

Note that FHA loans also have a version of mortgage insurance, but it cannot be removed from your monthly payment unless you initially put 10% down or you refinance your loan. If you put down 10% or more, your mortgage insurance premium (MIP) will be removed after 11 years. If you put down less than 10% on an FHA loan after June 2013, you cannot remove your MIP without refinancing your loan.

6. Other Housing-Related Costs

Utilities, such as water, electricity, and gas, can increase as energy prices rise or as your family’s consumption patterns change. Similarly, internet and cable bills may also increase if service providers raise their rates or if you upgrade your plan.

Homeowners should also budget for ongoing maintenance costs, including routine repairs, third party maintenance like pool and lawn care, and major upgrades like replacing the roof when the time comes. Regular upkeep costs, such as replacing worn-out appliances or repainting, can add up over time and often need to be anticipated in an annual home maintenance budget.

Additionally, unexpected repairs, like fixing plumbing or electrical issues, can lead to unplanned expenses that may not be directly tied to your monthly payment but can add additional financial strain if you’re not prepared for them.

Set A Budget That’s Right For You

While a fixed-rate mortgage guarantees that the principal and interest portion of your payment will remain the same for the life of your loan, it’s wise to avoid maxing out your budget when purchasing a home as fluctuating costs outside of your control can add up over time. Keeping a financial buffer will help you navigate unexpected increases in housing-related expenses without causing financial strain.