On a fixed rate mortgage the principal and interest stay the same for the life of the loan. If your payment went up, the escrow portion changed, almost always because property taxes or homeowners insurance cost more than your servicer had been collecting, and often because last year's gap has to be made up too.
The part that is fixed and the part that is not
Your monthly payment has two layers.
- Principal and interest. Set by your note. On a fixed rate loan it does not move.
- Escrow. One twelfth of your yearly property taxes and homeowners insurance, plus mortgage insurance if you have it. The servicer collects it monthly and pays the bills when they come due.
The servicer does not set your tax bill or your insurance premium. It passes them through. See How an Escrow Account Works.
Why one increase feels like two
At least once a year your servicer runs an escrow analysis. It looks back at what it paid out and forward at what it expects to pay. Two separate things can raise the payment:
- The new base amount. Taxes or insurance are higher, so the monthly deposit rises to match.
- The shortage. The account ran short over the past year because the bills came in higher than projected. That gap has to be refilled.
Federal rules also let the servicer keep a cushion of up to two months of escrow payments, which is recalculated when the bills rise.
Your options on a shortage
The analysis statement lists the shortage and what happens next. You generally have two choices.
- Pay the shortage in a lump sum. Your payment still rises to the new base amount, but not by the extra needed to refill the account.
- Spread it over the next 12 months. No large check now, a higher payment for a year, then it drops once the shortage is repaid.
Either way, compare the new base amount against the actual bills. If they do not match, call.
The usual causes in Arizona
Homeowners insurance went up. This is the most common cause in the past few years. Premiums have risen across the state as rebuilding costs and storm claims climbed. See Homeowners Insurance in Arizona.
Property taxes went up. Arizona limits how fast the taxable value of an existing home can rise, 5% a year under the rule voters approved as Proposition 117, but tax rates, voter-approved bonds and special districts can still move the bill.
A new home was assessed for the first time. The first tax bill on new construction is often based on the lot alone. When the county values the finished house, the bill can multiply, and the escrow payment follows. Buyers of new builds in the East Valley see this constantly, usually in the second year.
The home is classified as a rental. Arizona taxes owner-occupied homes and rentals in different classes, and primary residences receive a state rebate on part of the school tax. If the county has your home in the wrong class, you pay more. This happens when a home changes hands from an investor to an owner-occupant.
The prior estimate was low. At closing the escrow account is set up on the best figures available. If those were the seller's lower bill or an early insurance quote, the first analysis corrects it.
Mortgage insurance. This one usually moves the other way. If your mortgage insurance was removed, the payment drops.
What you can do about it
Shop the insurance. You choose the insurer, not the lender. Get quotes from an independent agent who works with several carriers, match the coverage carefully, and send the new policy to your servicer. Ask for a new escrow analysis after the change. Raising the deductible lowers the premium, but check that the new deductible is one your loan allows and one you could pay.
Check the county record. Look up your parcel on the county assessor's website. Confirm the legal class shows a primary residence if you live there, and that the square footage and features are right.
Appeal the value if it is wrong. Arizona counties mail a notice of value each year, and you have a limited window after the mailing date, about 60 days, to file an appeal with the assessor. The notice explains how. See Arizona Property Taxes for Home Buyers.
Look for exemptions. Arizona offers property tax relief for some widows and widowers, residents with disabilities and disabled veterans, and a valuation freeze for qualifying seniors. The assessor's office has the forms.
Ask about mortgage insurance. If your balance has come down or your home has gained value, you may be able to remove it. See What Is PMI and How Do I Remove It?.
Audit the statement. Look for a bill paid twice, a tax payment applied to the wrong parcel, or a lender-placed insurance policy charged because the servicer did not have proof of yours. Lender-placed coverage is expensive and protects only the lender. Send proof of your own policy and ask for the charge to be reversed.
Can I get rid of the escrow account?
Sometimes. Conventional loans may allow it once you have enough equity and a clean payment history, and the servicer may charge a fee. FHA loans keep the escrow account for the life of the loan. Without escrow you pay the tax and insurance bills yourself, in large amounts, on their due dates. The bills do not get smaller.
When a refinance is and is not the answer
A refinance does not lower your taxes or insurance. It can change the principal and interest, remove mortgage insurance, or change the term. If the higher payment is straining the budget, have the whole picture reviewed before you assume there is nothing to do. See When Should I Refinance?.
Read the statement in five minutes
- Find the old and new escrow payment.
- Find the shortage or surplus.
- Compare the projected tax and insurance figures with your actual bills.
- Check the date the new payment starts.
- If you pay by automatic draft from your bank, update the amount. Servicer autopay adjusts on its own. Bank bill pay does not.
Why ask me
- I answer the question before I sell you anything. If renting, waiting or a different program is the better move, I will say so.
- Real numbers, not a calculator guess. I price your actual scenario, side by side, with the fees on the page.
- Every program under one roof. Conventional, FHA, VA, jumbo, and non-QM options like bank statement, DSCR and asset-based loans, so the program fits you instead of the other way around.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
More plain-English answers in the Mortgage Education library.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Program guidelines, eligibility requirements and documentation standards vary by investor and change over time. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify. This is not legal or tax advice; consult a qualified professional about your own situation.
Find out what your blended rate actually is
A refinance is shopped against the mortgage rate and decided by the blended rate across everything you owe. Tell me what is on the house and what you want gone, and I will run both.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
