Stop telling buyers that a fixed-rate mortgage means their payment will never change. Rising property taxes and insurance costs make that bad advice, Bernice Ross writes.
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. For the 80 percent of borrowers who have mortgage escrow accounts, that’s simply not true.
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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 the borrower’s budget but could even lead to foreclosure.
Savvy agents will want to set their clients up for success by providing them with education about the potential changes to their new home payment in the future. In this article, we will break down the specifics of what knowledge to sow, and which myths about fixed-rate mortgages need to go, especially for first-time buyers.
Your clients likely have the wrong idea
According to a Lereta Survey conducted in January 2025, approximately 80 percent of all mortgage holders have a mortgage escrow account. The idea is to help the borrower by spreading insurance and tax payments over 12 months rather than paying them as a lump sum.
What happens in practice is that the buyer often ends up paying six to 12 months of these costs upfront when their property closes.
The survey also showed how pervasive this myth is:
- 45 percent of respondents mistakenly believe their payments cannot change if they have a fixed-rate mortgage.
- Over the past two years, 80 percent of borrowers have 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 those, 65 percent have had difficulty getting another policy with a different carrier.
- In terms of the impact, 49 percent said it would be a hardship if their monthly payment increased by 10 percent, and almost half of that group would consider moving from a major property tax increase, and 27 percent if they experienced a major insurance rate increase.
Update your buyer interview now
It’s critical that you explain the following facts to your buyers during your buyer interview:
- If they’re putting less than 20 percent down, they will have to pay monthly prorated PMI through a mortgage escrow account, as well as their taxes and homeowner’s insurance.
- Property taxes and insurance rates fluctuate. In most cases, they increase, which means so will the borrower’s monthly payment.
- While you need to alert your buyers to this situation, avoid trying to explain the details. Instead, refer them to their lender for the exact details of how that lender’s programs work. Most lenders are usually quite happy to explain the process and answer any questions the buyer may have.
What happens when the borrower’s escrow account runs out of money?
When the borrower’s escrow account runs out of money, they have three options:
- Pay the remaining balance as a lump sum payment on top of what they’re already paying for their monthly payment.
- 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 that 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 the lender right away to explore all available options.
- The other option is to sell and find an alternative property with lower costs.
The offer conversation you won’t want to have, but need to have anyway
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.
To illustrate this point, Austin, Texas, has earned the dubious title of “Flash Flood Capital of the World,” due to the extreme thunderstorms we have here. Along with flooding, these storms can also produce tornadoes, wind damage and large hail events that damage roofs, vehicles, windows, etc.
Our weather patterns here also produce ice storms that down trees and powerlines, and that can cause serious injury if you slip on the ice. Together, these events all drive higher insurance rates here in Texas.
Furthermore, 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 may produce a higher premium rate today than even 12 months ago. It’s important that buyers shop for insurance to find the best possible deal for their home purchase.
The affordability conversation 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, but it can also 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 and longer-lasting relationships with your clients, and close more transactions.
Bernice Ross is president and CEO of BrokerageUP and RealEstateCoach.com, the founder of Profit.RealEstate and a national speaker, author and trainer with over 1,500 published articles.
