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As many homebuyers find out, getting a fixed-rate mortgage doesn’t necessarily mean your monthly payments will be the same.
For many homeowners, in addition to monthly principal and interest payments, the mortgage payment also includes an amount deposited into an escrow account. This account pays homeowner’s insurance premiums and property taxes, as well as mortgage insurance if the borrower requires a mortgage.
About 65% of escrow accounts are expected to be short this year due to recent cost increases, according to real estate data analysis firm Cotality. The estimated average shortfall is $2,157.
It’s not unusual for escrow costs to be adjusted up or down each year, but they’ve increased about 45% since 2019, according to Kotality. In some states it was even higher, for example, homeowners in Florida and Colorado saw increases of 70% and 77%, respectively. Based on the Consumer Price Index, the cumulative inflation rate from May 2019 to April 2025 was approximately 30%.
Homebuyers “should expect these costs to rise,” said Thelma Hepp, chief economist at Kotality. “But (consumers) often think about a 30-year fixed-rate mortgage and think that the cost of housing is fixed.”
Why are payments going up?
About 80% of mortgage borrowers have escrow accounts, according to Leleta, which provides property tax and flooding data to mortgage servicers. Those without escrow accounts pay insurance and taxes directly.
When a mortgage servicer conducts an annual review of escrow accounts, it evaluates the amount paid and predicts payments due for the following year. If there is a shortfall, lenders will typically spread the additional cost over 12 months to push up your monthly payments. For example, if your average shortfall in 2026 is $2,157, you’ll pay an additional $179.75 each month.
Experts say they may be given the option to prepay the shortfall in a lump sum.
“If you have an emergency fund that can cover any shortfalls at once, that’s the easiest way to go,” says Stephen Cates, a certified financial planner and financial analyst at Bankrate.
“Paying over time can result in shortfall payments being piled up on top of the ongoing high monthly payments created by the updated escrow calculations (annually),” Cates said.
Homeowner’s insurance premiums are rising
Hepp said the amount held in escrow is becoming a growing percentage of homeowners’ payments.
“Insurance taxes and property taxes have skyrocketed in recent years,” Hepp said.
The average annual cost of homeowners insurance is expected to reach $3,057 by the end of 2026, up 4% from $2,948 in 2025, according to insurance comparison site Insurify.com. The average cost of homeowners insurance has increased 46% since 2021 due to severe weather and natural disasters, according to the report.
To combat rising premiums, Cates says you can buy less expensive coverage, compare deductibles and coverage limits, and look for available discounts.
Property taxes rise along with house prices
Property taxes also rose as housing prices rose. According to Kotality, the average annual amount paid by homeowners in the U.S. will be $3,018 in 2024, an increase of 27.4% from 2019. House prices rose 51.6% in that time, according to data from Cotality.
While property taxes are typically a large portion of the escrow amount, “in some areas insurance is growing much faster and is outpacing the total amount that has to be put in escrow for property taxes,” Hepp said.
Cates said it may be possible to appeal a new property tax assessment, but there would need to be strong evidence that the value is too high. “Don’t appeal just because you feel your bill is high, and don’t automatically appeal every assessment cycle,” he said.
You can also check with your local government to see if there are any exemptions or reductions available to certain homeowners, such as homeowners age 65 and older.
