How Inflation is Affecting Me

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We are almost halfway into 2022 and the list of things that I have to pay more for keeps growing. The latest surprise was the escrow balance on my mortgage. Early in the year I received a notice from the city that my property taxes would be increasing by $560. That is an 18% increase from the previous year with no upgrades to the property. The bank pays my property taxes out of an escrow account, which is part of my mortgage payment. The bank sent a notice that my payment would be increasing by 22% because of the property tax increase. Why did my payment increase by more than the property tax? The bank needs a reserve balance in the escrow account and mine went negative when they paid the first half of my 2022 property taxes.

This doesn’t include the interest rate increase that is due to reset in August. Currently my rate is at 3.25%, which is based on the prime rate. I expect the rate to be at least 5.25% when it resets. Since I have less than $16k left on the principal, I expect to see the monthly interest go from $44 to $70. I hope my calculations are correct and the monthly interest only increases by $26, but who knows. In order to keep the monthly payment from increasing too much, I decided to transfer $560 into the escrow account. This is less than the $972 that the bank needs to keep the mortgage payment the same. If all goes well, my new mortgage payment will be around $425. That would be a 17% increase in the monthly payment.

On top of that, my homeowner’s insurance is increasing by 8.5%. Overall, my previous monthly expenses were about $1300. If we apply a modest 8% increase estimate, my monthly expenses will be around $1400. But, because of the mortgage rate, insurance, property tax, and food prices the increase will more likely be 16% or $1500 per month. Coming up with an extra $200 per month will not be easy. My budget is already down to the essentials. I allow $40 for fuel, $20 for clothing, $30 for auto maintenance, and $80 for health care. Lacking any other ways to cut expenses, the remainder will have to come out of savings. What advice can I give? Pay down your mortgage principle whenever you get extra money. As you move toward retirement, this will lower your monthly payments and keep your budget under control.

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