The envelope came Monday, August 4, and it looked like everything else our mortgage servicer sends: windowed, folded in thirds, mostly tables. I almost put it on the pile by the toaster. Then I read the second line of the summary. Starting with the October 1 payment, our mortgage would go from $1,856 a month to $2,127.
That's $271 more a month, $3,252 a year, for the same house with the same loan. Nothing about the loan changed. What changed was our property taxes, and the reason is a Michigan rule I'd heard about in passing but never connected to our payment.
Uncapping, in plain words
Here's my understanding of it, pieced together from the letter, our tax bills and a long evening of reading. Please ask your assessor or a tax preparer how it works for your own house.
In Michigan, while you own a home, its taxable value can only go up by inflation or 5 percent a year, whichever is less. Market value can climb much faster, so the longer someone owns a house, the further its taxable value falls below what it's really worth. When the house sells, that cap comes off the following year, and taxable value jumps up to the state equalized value, which is half of what the assessor thinks the house is worth.
The couple we bought from had owned the Cape since 1988. Their capped taxes in 2024 were about $2,450. We closed in April 2024, so in 2025 our taxable value uncapped to $125,000. We filed the Principal Residence Exemption at closing, which helps a lot, and our 2025 taxes still came to $4,380: a $2,940 summer bill that escrow paid in July, and a $1,440 winter bill due in December.
Our escrow had been set up using the seller's tax bill. Our realtor did say "taxes will probably go up," in the same tone people use for "it might rain later." Nobody, me included, did the math on what that meant for the payment.
The letter, line by line
At closing, our $1,856 was $1,449 of principal and interest, $96 of PMI and $311 into escrow (about $204 for taxes and $107 for the State Farm policy). The new payment breaks down like this:
- Principal and interest: $1,449 (this part never changes)
- PMI: $96
- Taxes: $365, which is the $4,380 spread over 12 months
- Insurance: $96, down from $107 because we switched to Auto-Owners in July
- Escrow shortage: $121
The shortage is the part that stung. As I read the letter, the servicer projects the next twelve months of tax and insurance bills, finds the lowest point the escrow balance will hit, and compares that with a cushion they want to keep in the account. After paying a summer tax bill far bigger than what escrow had collected for it, we came up $1,452 short. The refund from State Farm when we switched policies went into escrow and softened it some, or it would have been worse.
At work, that cushion would be called safety stock. I have a lot more affection for it in a warehouse than I do on my mortgage.
Why we spread the shortage
The letter gave us two options. We could send $1,452 now, and the payment would go to $2,006. Or we could let them spread it over 12 months at $121 a month, which brings us to $2,127. The letter didn't mention any interest on the spread version.
We spread it. The wedding is five weeks away, and we're paying for it out of savings with help from both families. The house fund only started in May at $150 a month and isn't very big yet. And our emergency fund is for emergencies, which this isn't. It's just a bill we didn't see coming. Tessa settled it in one sentence: "We are not mailing them $1,452 five weeks before the wedding."
The tradeoff is that our payment is $121 higher for a year, and if something else goes up in the meantime, it stacks on top. I'm fine with that. The total is the same either way, and the cash stays with us during the two most expensive months of our lives so far.
I updated the house sheet that night: a new payment line starting in October, and the $121 marked to drop off after twelve payments if nothing else changes. With this house, "if nothing else changes" is doing a lot of work in that sentence.
