The fixed rate mortgage myth needs to stop spreading

For decades, we have trained our agents and consumers to believe that if you have a fixed-rate mortgage, your monthly loan payments will not change. For the 80 percent of borrowers have a frozen mortgage accountthat’s just not true.

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Instead, these borrowers must pay their private mortgage insurance (PMI), property taxes, and their homeowner’s insurance statement as needed, prorated monthly along with their mortgage payment. Rising insurance rates and property tax increases due to rising prices not only strain the borrower’s budget but can even lead to foreclosure.

Smart agents will want to set their clients up for success by educating them about the potential changes to their new home payment in the future. In this article, we will break down the details of what knowledge we need to sow, and what myths about fixed rate mortgages need to dispel, especially for first-time buyers.

Your customers probably have the wrong idea

According to one Lereta survey January 2025 shows that approximately 80 percent of all mortgage holders have a frozen mortgage account. The idea is to help the borrower by spreading the insurance and tax payments over twelve months rather than paying them as a lump sum.

What happens in practice is that the buyer often has to pay six to twelve months of these costs upfront when their property closes.

The research also showed how widespread this myth is:

• 45 percent of respondents incorrectly believe that their payments cannot change if they have a fixed-rate mortgage.
• In 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a tax increase, 70 percent have seen their homeowner’s insurance increase and 27 percent said their insurance policy was revoked by the carrier. Of those, 65 percent have had difficulty getting another policy with another carrier.
• In terms of the impact, 49 percent said it would be difficult if their monthly payments increased by 10 percent, and nearly half of that group would consider moving away from a large property tax increase, and 27 percent if they experienced a large increase in insurance rates.

Update your buyer interview now

It is critical that you explain the following facts to your buyers during your buyer interview:

1. If they put down less than 20 percent, they must pay a prorated monthly PMI through a mortgage escrow account, as well as their taxes and homeowner’s insurance.
2. Property taxes and insurance rates fluctuate. In most cases, they increase, meaning the borrower’s monthly payment also increases.
3. While you should make your buyers aware of this situation, try not 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 happy to explain the process and answer any questions the buyer may have.

What happens if the borrower’s escrow account runs out of money?

When the borrower’s escrow account runs out of money, he or she has three options:

• Pay the remaining balance as a lump sum on top of what they already pay for their monthly payment.
• Negotiate with their lender to see if they can find an alternative to address the situation. During the pandemic, many lenders used a tool called “tolerance“, which allowed borrowers to defer payments until the end of the loan or when the property was sold. Other programs gave the borrower more time to pay off the loan or change the interest rate.
• In the worst case, the lender can file a notice of default and initiate foreclosure proceedings. Most institutional lenders really don’t want their books seized. If any of your former clients are in this situation, encourage them to contact the lender immediately to explore all available options.
• The other option is to sell and find an alternative property with lower costs.

The offer conversation that you don’t want to have, but still have to have

Unless your buyers are paying all-cash, you’ll need to explain how increases in property taxes and insurance payments can derail a deal while the property is under contract, just as an increase in interest rates can. Be especially wary if you’re selling in areas prone to various types of disasters, as these are the main drivers behind most rate increases. Whether it’s hurricanes, tornadoes, floods, hail, fire or earthquakes, you need to know the biggest risks in your area.

To illustrate this point, Austin, Texas, has earned the dubious title of ‘Flash Flood capital of the world’ because of the extreme thunderstorms we have here. In addition to 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 blow down trees and power lines, and can cause serious injury if you slip on the ice. Together, these events all result in higher insurance rates here in Texas.

Additionally, a home whose roof is more than 10 years old or has prior insurance claims, deferred maintenance, or high exposure to wind, hail, wildfire, or flood risks may command a higher premium today than even 12 months ago. It is important that buyers purchase insurance to find the best possible deal on their home purchase.

The conversation about affordability needs to change

Today, our buyers face 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 can be dangerous.

The most successful agents have these candid conversations early on. They update their buyer interviews to clearly explain escrow accounts, PMI, and the very real possibility that monthly housing costs will increase over time. They also address insurance and tax risks during the offering phase, especially in high-exposure markets.

Buyers who understand these dynamics make better decisions, experience fewer unfortunate surprises, and are much less likely to experience hardship or foreclosure after their transaction closes. Your role is to provide your clients with the whole truth. By doing this, you will gain more trust, build stronger and longer-lasting relationships with your customers, and close more transactions.

Bernice Ross is president and CEO of BrokerageUP And Real EstateCoach.comthe founder of Profit.Real estate and a national speaker, author and trainer with more than 1,500 published articles.