Adjusting to a New Mortgage Payment

When you buy your first house, there are many expenses to consider when making your budget: fluctuating utility bills and emergency repairs are likely the first things you think of. But something I haven’t considered since we bought our home last year is the increase in the escrow portion of our mortgage due to increasing city taxes. Taxes here in North Jersey are mind-boggling, particularly in our county.

While we were on vacation, one of the pieces of mail in the stack we came back to was a notice from our mortgage company, stating that our total mortgage payment would be increasing by $85 in order to accommodate the need for additional monies in our escrow account. (Our mortgage company pays the city tax and hazard insurance from our escrow).

In reality, the prorated escrow shortage is estimated to only be $46 per month, but the mortgage company wants $85 in order to maintain the “allowable low-point balance” in the account. So now I’ll have to take a look at our loose “budget” (we don’t follow a strict line-by-line formula) for the next 12 months to determine where that money is going to come from.

It also puts a crimp in my pay extra on the mortgage plan that I’ve been following the past year. Since Day 1, I’ve made an extra principal payment of $25 each month, and recently increased it to $50. It doesn’t sound like much, but if I keep it up, we’ll shave more than a year from our mortgage and save $15,000 in interest. Now, I’m not sure I can keep up that pace and still reach our short-term savings goals. Our cell phone bill is already as low as possible, the TV package is locked in for another year (and Mr. Saver would lose his mind if I cut any of the channels), and we’re already closely watching our utility usage. Our car insurance premium is excellent for Northern New Jersey, and we brown bag our lunches 95% of the time. Besides the vacation we just went on, we don’t spend much on entertainment and go out to eat maybe once a month. I’m couponing best I can with the groceries, but I think there’s room for improvement there. We did add a bit of a balance on one credit card after becoming debt-free (except for our 0% car loan and mortgage), but that was due to clothes shopping, $100 in baggage fees for our vacation ($25 each bag, each way) and a nice dinner. That will be paid off again in two months (I could do it in one fell swoop at the end of the month, but would rather spread it out to keep our checking account a little more liquid).

Tackling the New Mortgage Payment

Once I tally up our expenses, I’ll have a better idea of where we stand. We were thinking of upgrading our 2 1/2-year-old cell phones to smartphones (we can get two Droids from Verizon for $99), but that would require an additional $30 monthly data usage fee for each phone. So that might be put on hold, especially since I haven’t been doing much freelance work lately.

What I think I’ll do is round up our new mortgage payment to a nice, even number, which would still add $23/month in a principal payment and go from there. I don’t think we’ll miss it, and I can bump it back up to $50 extra in a few months if all goes according to plan. Raises at the end of the year would help, but I’m not holding my breath — while I’m happy to be gainfully employed, there’s been a two-year drought due to the economy. Mr. Saver has been getting what equals a cost-of-living raise, which is helpful.

19 comments to Adjusting to a New Mortgage Payment

  • Ughh, I’m not looking forward to seeing our property taxes eventually go up. Where I am a bulk of it goes directly to the school system so at least the kids will see the benefit.

    • Nicole

      @Craig: Ours will likely go up every year — the majority of our property taxes goes to the schools & police/fire departments.

  • I guess we’re lucky-ish here around Houston. Our property taxes are 3.1% but our house appraised value is so much lower than coastal states. Our annual property taxes on our specific house are between $2500-$3500 a year but our mortgage is $740 a month for 15 years (we don’t escrow).

    We have paid $900 a month to the mortgage since day one and put $300-$400 a month into our tax account just to be safe. At the end of the year, after taxes are paid, we split the excess in the tax account 50/50 between responsible stuff like the mortgage and fun stuff like our vacation account. 🙂

    Good luck on finding your extra! “Surprises” like this suck. 🙁

  • Yikes, property taxes at 2-2.5% in NJ? That’s SO expensive!

    Just a small correction for CA prop tax, it is actually 1.15%, not 1.5%.

    Prop 13 is good, but part of the reason why we have such a big budget deficit!

    • Nicole

      Sam: Our current property tax “cap” is a 4% increase, tied to assessed value. Hah.

      • At least there’s a 4% increase cap, although probably irrelevant in this market.

        Ours is tied to inflation… so generally 0.9% to 1.9% increase MAX, even in the boom years.

  • Ouch. That sucks. That has happened to me almost every year since we bought our home, and I don’t remember anyone ever explaining that to me ahead of time. I was totally caught off guard and it was a big shock the first year when we were short almost $2000. The taxes didn’t go up that much, but the average escrow balance was short…I still don’t completely understand how they calculate this.

    The good news is my town just went through a reassessment and my taxes are actually going down about $800 so hopefully that will help offset any shortages. Still at about $8000 for a small home built in 1954. Blast these NJ taxes!

    • Nicole

      @Mike: That’s what happened to us, too. Taxes up $450 or so (which is not bad, considering it’s Essex County), but the mortgage company wants more padding in the escrow account. We’re about $8800 for a small-to-medium home built in 1950, so I feel your pain. Glad you benefited from the reassessment — many folks usually get shafted.

  • You also have to remember that the escrow account is emptied and the balance mailed to you, if there happens to be a balance. You shouldn’t count on that money coming back, per se, but it’s a thought. Depending on the housing market and how much overpaid your escrow account is this year, it could be much cheaper next year when they try to rebalance it.

  • That stinks. Not sure if it’s an option with your lender, but if you were able to “un-escrow” your property taxes, you could set those funds in a CD or Money Market and earn interest all year to help offset the cost.

  • Wow! That stinks. That is definitely something I would never have bothered to ask a homeowner about. Here in CA, our property tax has held steady at 1.5% of the purchase price of the house for the past 30 years. (This has definitely affected our educational system, which I work for…as in our school district is broke.) I know that our state is one of the least expensive when it comes to property taxes and I’ve heard NJ is quite complicated. Perhaps you can follow Mysti’s advice, pay the additional amount in a bulk payment. That way you can still pay a little more towards your principal and continue with your loosely defined budget.

    • Nicole

      @Little House: NJ is trying to enact its own Proposition 2 1/2, like CA, to keep property taxes capped at 2-2 1/2%. And that’s the argument here, too — will the educational system suffer? Our taxes are $8,700 for less than a quarter-acre and a home built in 1950 and minimally updated since then, and that’s just not fair.

  • Depending on your savings…you can always send the mortgage company a bulk payment and then spread out the remainder over the months. That might help out on a month to month basis.

    And be forewarned….this is likely to happen over and over again! I think in the 8 years we have been homeowners, it has happened 6/8 times.

    • Nicole

      @Mysti: I’m thinking about doing that. And since our taxes go up every year, I’m sure it will happen every year! It was just one of those things I forgot about over the past year, since we bought our home.

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