How Can My Escrow Account Affect My Mortgage Payment?12/15/2016And what can I do about it?If you established an escrow – or impound – account to collect property tax and homeowners insurance your monthly mortgage payments can change from year to year. What you may not know is that any change at any time in the assessed value of your property can also affect your monthly mortgage payment. The reasons for a tax reassessment vary from one state to another, but generally they include: The taxing agency periodic evaluationthe home is being soldthe home is being renovated or undergoing new constructionthe property owner requests reassessment, usually for purposes of refinancing Typical monthly mortgage loan payments are broken down this way: the amount required for paying the loan principal,the amount required for paying interest on the loan,the amount required for paying annual property taxes, andthe amount required for paying property insurance. This formula is commonly referred to as “PITI” (for ‘principal, interest, tax, and insurance”). When a mortgage lender collects PITI payments, an escrow account is established to hold the insurance and tax portions. One-twelfth of the property’s yearly tax and insurance is then deducted from the mortgage payment every month and placed in the escrow account. Annually or semi annually, the property’s insurance carrier and the county clerk’s office each receive a check from the mortgage lender to pay off the property taxes. If your property is reassessed, the tax portion of the PITI payment must be changed to reflect a greater or lesser amount, as appropriate, for the following year. You should receive a letter from your mortgage lender notifying you of any change in your payment amount. Some mortgages include only the principal and interest amounts, making it the responsibility of the homeowner to pay taxes and insurance separately. If your mortgage payment doesn’t include taxes and insurance, any change in your property’s assessed value will not affect your monthly mortgage payment amount. Depending on your state’s laws, the assessed value of your property may be tied to its fair market value (FMV – the price you should expect to get for your home if you sell it), which in turn determines your property taxes. In difficult economic times, any fluctuation in the local housing market would then be reflected in the FMV. Check your state’s property tax laws to see if this applies to you. If it does, and if local FMVs have declined, you may want to ask your county recorder’s office to reassess your property.