A new analysis published by Neighbors Bank indicates that escrow costs heading into 2026 continued to consume a larger portion of households’ monthly mortgage payments compared to historical norms.
Taxes and insurance now account for 21% of homeowners’ monthly mortgage payments across 450 of the largest U.S. metros, the bank found. This underscores the reality that as elevated home prices and interest costs dominate headlines about affordability, “a growing share of homeowners’ monthly payments isn’t going toward principal or interest at all.”
First-time and low-downpayment homebuyers are more likely to feel the budget pressures of rising escrow costs, because that group of buyers is more likely to have their taxes and insurance bundled into an escrow account instead of paying an annual lump sum, the analysis found.
To reach its conclusions, Neighbors Bank examined insurance data collected by the U.S. Department of the Treasury as of 2022, adjusted for 2025 inflation as measured by the Labor Department’s producer price index. Median effective property tax rates were calculated by dividing median home values for various metros by median real estate taxes paid, based on 2024 U.S. Census Bureau data.
As the ancillary costs of ongoing homeownership continue rising, many borrowers with fixed-rate mortgages reported being unaware that their monthly payments can change due to higher assessments for taxes and property insurance.
A recent survey of more than 1,000 homeowners by tax and flood services provider Lereta revealed that almost 40% of respondents thought their mortgage payment could not change if they have a fixed mortgage interest rate and an escrow account — an increase from 36% last year.
At the state level, escrow-related costs rose 30% on average last year — up about 45% from five years ago — to account for 30% or more of a typical monthly mortgage payment in 35 states, according to Lereta. Escrow costs comprised 40% or more of a typical monthly payment in nine states.
The Neighbors Bank analysis released this week builds on the market’s growing appreciation for how the rising flexible costs of ongoing homeownership make long-term affordability increasingly unstable — and the process of qualifying borrowers more difficult for lenders.
A lack of appreciation among borrowers about annual escrow increases can become a concentrated burden in markets perceived as friendlier to first-time buyers due to lower typical home prices compared to national benchmarks, such as metro markets in Illinois, Neighbors Bank noted.
Taxes and insurance comprised more than 37% of average monthly mortgage payments in Decatur, Ill., according to the bank’s analysis, despite the metro’s average total monthly mortgage payment of just $955. The national median monthly payment for new mortgages originated in January was $2,070, according to the Mortgage Bankers Association.
Elsewhere in Illinois, taxes and insurance made up more than 35% of the $1,281 average monthly payment in Peoria and nearly 34% of $1,585 average payments in Rockford. But local drivers of escrow increases can be weighted more heavily to property taxes than rising insurance costs, such as in the Prairie State, where property taxes make up about 40% of local government revenue, compared to 30% nationally.
“Lower home prices and downpayment requirements can make these markets accessible upfront,” the report warns, “even as ongoing taxes and insurance place added pressure on monthly budgets.”
In Florida metros like Pensacola and Miami, where the analysis indicates escrow costs account for 43% and 34% of average monthly mortgage payments, spiking insurance expenses are the dominant force driving up escrow costs.
Overall, Neighbors Bank observed that escrow hikes highlight the increasing portion of monthly mortgage costs that buyers can’t control after closing.
“When people think about buying a home, the focus is on price, downpayments and the interest rate,” said the report. “But a growing share of today’s housing payment isn’t going toward building equity at all.”
