Taxes & Insurance
Why did my mortgage payment jump in the second year?
The short answer
A year-two payment jump is usually a property-tax reassessment working through your escrow account. At closing, the lender sizes your escrow from the seller’s current tax bill — which often reflects an older, lower assessed value or exemptions the seller had and you do not. After the sale, many counties reassess the home at your purchase price, so the tax rises. Your servicer then both raises the ongoing escrow and, under federal RESPA rules, spreads the prior year’s shortfall over the next twelve months, so the payment temporarily peaks before settling at the new, higher level.
Key points
- Escrow at closing is based on the seller’s bill, not your purchase price.
- Reassessment at the sale price raises the tax the following year.
- RESPA spreads the escrow shortage over ~12 months — a temporary peak.
- The payment settles above year one, even on a fixed-rate loan.
Why the estimate at closing is often too low
The seller’s tax bill can reflect an assessment set years ago, a homestead or senior exemption that does not transfer, or a purchase price below current market value. Because the lender builds your initial escrow from that number, the first year understates the tax you will actually owe once the county reassesses.
How RESPA turns a shortage into a temporary spike
When the reassessed tax bill arrives, the escrow account is short — it under-collected all year. Federal rules let the servicer collect that shortage over the following twelve months in addition to the higher ongoing amount, so the payment peaks during the catch-up year and then eases to the new steady level. The Year-2 Payment-Shock tool estimates all three numbers from public county tax rates.
Common questions
- Is the higher payment permanent?
- The ongoing increase is — taxes rose. The extra catch-up amount is temporary, lasting roughly twelve months while the servicer repays the shortage.
- Can I avoid the surprise?
- You cannot avoid a reassessment, but you can estimate it before you buy using your purchase price and the county effective tax rate, and set money aside for the first escrow adjustment.
Put this to work
Sources
Every claim above traces to a public government source.