Bernice Ross
For decades we have trained our agents and consumers to believe that if you have a fixed-rate mortgage, your monthly loan payment will not change. But for the 80 percent of borrowers who have mortgage escrow accounts, that’s simply not true.
Instead, these borrowers must pay their private mortgage insurance (PMI) if required, property taxes and their homeowner’s insurance statement – prorated monthly – along with their mortgage payment.
Soaring insurance rates and property tax increases due to appreciating prices not only stretch a borrower’s budget, but could even lead to foreclosure.
How Mortgage Escrow Accounts Work
According to a survey by real estate tax and flood risk firm Lereta, conducted in January 2025, approximately 80 percent of all mortgage holders have a mortgage escrow account.
These accounts help the borrower by spreading insurance and tax payments over 12 months, rather than making them pay a lump sum that can hit $10,000 in some high-cost communities.
What happens in practice is that the buyer often ends up paying six to12 months of these costs up front when their property closes.
The survey also showed how pervasive the myth of stable housing costs is.
Forty-five percent of respondents said they thought their payments cannot change if they have a fixed rate mortgage.
But over the last two years, 80 percent of respondents experienced a tax increase, 70 percent have seen their homeowner’s insurance increase and 27 percent said their insurance policy had been dropped by their carrier. Of the latter, 65 percent have had difficulty getting another policy with a different carrier.
When an Escrow Account Runs Out
When the borrower’s escrow account runs out of money, they have three options.
First, they can pay the remaining balance as a lump sum payment on top of what they’re already paying for their monthly payment.
Second, they can negotiate with their lender to see if they can find an alternative for handling the situation. During the pandemic, many lenders used a tool called “forbearance,” which allowed borrowers to defer payments until the end of the loan or when the property sold. Other programs allowed the borrower more time to pay off the loan, or change the interest rate.
The worst case scenario is the lender can file a notice of default and begin foreclosure proceedings. Most institutional lenders really don’t want a foreclosure on their books. If any of your past clients are in this situation, encourage them to contact lender right away to explore all available options.
The Offer Conversation You Need to Have
Unless your buyers are paying all cash, you need to explain how increases in property taxes and insurance payments can derail a deal while the property is under contract, just like an increase in interest rates can.
Be especially wary if you’re selling in areas prone to various types of disasters because these are the key drivers behind most rate increases. Whether it’s hurricanes, tornadoes, floods, hail, fire or earthquakes, you need to know the major risks in your area – risks that can change block by block in the case of coastal or inland flooding.
To illustrate the point, imagine a property where the roof is more than 10 years old or has prior insurance claims, deferred maintenance, or high exposure to wind, hail, wildfire or flood risk.
Any of those may produce a higher premium rate today than even 12 months ago. Can your buyers afford that?
The Affordability Discussion Needs to Change
Today our buyers are facing a major threat from rising property taxes and insurance costs. Continuing to tell buyers that a fixed-rate mortgage means their payment will never change is not only inaccurate – it can be dangerous.
The most successful agents are having these candid conversations early.
They’re updating their buyer interviews to clearly explain escrow accounts, PMI and the very real possibility that monthly housing costs will increase over time. They’re also addressing insurance and tax risks during the offer stage, especially in high-exposure markets.
Buyers who understand these dynamics make better decisions, experience fewer unhappy surprises and are far less likely to face hardship or forced sales after their transaction closes.
Your role is to arm your clients with the full truth. By doing so, you will earn greater trust, build stronger, longer-lasting relationships with your clients, and close more transactions.
Bernice Ross is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at bernice@realestatecoach.com.
