For a 30-year fixed-rate mortgage with an escrow account, the monthly mortgage payment consists of principal, interest, taxes, and insurance (often referred to as PITI). The principal and interest portions remain constant with a fixed-rate mortgage, but the escrow account is used by the lender to collect and pay property taxes and homeowners insurance premiums on the borrower's behalf.
Escrow accounts are required by many lenders to ensure that taxes and insurance are paid on time. If the annual property taxes and/or homeowners insurance premiums increase, the lender will adjust the amount collected for escrow each month, which will increase the total monthly payment (even though the principal and interest portion stays the same).
“While your principal and interest payment remains the same on a fixed-rate mortgage, your total monthly payment can increase if your property taxes or homeowners insurance premiums increase, since these are typically included in your monthly escrow payment.”
— Consumer Financial Protection Bureau (CFPB): What is an escrow account?
Other options are incorrect:
A. Utility bills are not part of the mortgage payment or escrow.
B. The interest rate does not increase with a fixed-rate mortgage; it remains constant.
D. Servicers do not collect payments for unrelated auto loans with the mortgage.
[References:, Consumer Financial Protection Bureau (CFPB), “What is an escrow account?”, SAFE MLO National Test Study Guide, HUD Mortgage Servicing Handbook, Escrow Requirements Section, , , , ]
