A property expense that isn’t given as much focus as mortgage rates or home prices is escrow payments. Yet that’s what Hawaii homeowners are dealing with right now – a significant increase in escrow payments, which is quietly impacting monthly housing budgets in the islands.
Recent research from housing analytics firm Cotality shows the average escrow payment for Hawaii homeowners has risen by 49% since 2019. This places Hawaii among the most affected markets nationwide and underscores how rising insurance premiums and tax expenses are creating a significant financial burden for both current and prospective homeowners.
Escrow payments, which are bundled into monthly mortgage bills, are designed to help homeowners manage recurring expenses such as property taxes and homeowner’s insurance. However, as those underlying costs increase, escrow payments rise alongside them, often unexpectedly, pushing total housing costs higher even when mortgage interest rates remain unchanged.
Understanding Escrow and Its Growing Role in Housing Costs
Escrow is a mechanism used by lenders to ensure that essential property-related expenses are paid on time. Each month, a portion of a homeowner’s mortgage payment is set aside into an escrow account. When property tax bills or insurance premiums are due, the lender pays them directly from that account.
For many homeowners, escrow provides convenience and peace of mind. Instead of budgeting separately for large annual or semiannual bills, the costs are spread evenly throughout the year. But that same structure can mask rising expenses until they show up as a higher monthly payment.
In Hawaii, escrow payments account for roughly 18% of the total monthly mortgage payment in 2025, based on Cotality’s Escrow Share 2025 analysis. That share is lower than in many mainland states, largely because Hawaii’s exceptionally high home prices mean that principal and interest make up a larger portion of monthly housing costs.
Even so, the rapid pace of escrow growth has become a meaningful affordability issue. A nearly 50% increase over six years represents a substantial change for households, particularly those on fixed incomes or tight budgets. While escrow may still represent a smaller slice of the monthly payment, its growth rate is outpacing wage increases for many residents.
Insurance and Taxes Drive Escalating Escrow Bills
The primary forces behind rising escrow costs in Hawaii mirror national trends. Homeowners insurance premiums have climbed sharply as insurers reassess risk, respond to higher construction and replacement costs, and adjust pricing models in the face of increasing climate-related volatility.
Hawaii’s geographic exposure to hurricanes, flooding, and other weather-related risks has added complexity to the insurance market. Even when claims activity remains relatively stable, insurers often raise premiums to account for long-term risk projections and reinsurance costs. Those increases are passed directly into escrow accounts, raising monthly payments for homeowners.
Property taxes also contribute to escrow growth. While Hawaii historically maintains relatively low effective property tax rates compared with many states, rising home values have expanded tax assessments in many areas. As assessed values increase, tax bills follow, further pushing escrow payments higher.
Together, these factors have turned escrow into a more prominent and less predictable component of housing costs. For homeowners who purchased several years ago, escrow increases can feel particularly jarring, as they occur independently of loan terms that may have been locked in at historically low interest rates.
Hawaii’s Experience Reflects a Broader National Trend
The surge in escrow costs is not unique to Hawaii. Across the United States, homeowners are paying an average of 45% more in escrow expenses than they did five years ago, according to Cotality. In some markets, escrow payments now rival or even exceed mortgage principal and interest, fundamentally altering the cost structure of homeownership.
Markets in the Midwest and South have seen some of the steepest increases, particularly in regions where insurance markets are under strain and property taxes have risen sharply. In those areas, escrow payments often make up a much larger share of the monthly mortgage bill, amplifying their impact on affordability.
Hawaii’s situation demonstrates that even states where escrow represents a smaller percentage of housing costs are not insulated from sharp increases. The state’s high baseline housing prices already strain affordability, and rising escrow payments add another layer of financial pressure for homeowners and buyers alike.
National data suggests that escalating escrow obligations are also contributing to higher mortgage delinquency rates. When monthly payments rise unexpectedly, some homeowners struggle to adjust their budgets quickly enough, especially if income growth has not kept pace with housing-related expenses.
Implications for Buyers and Sellers in Hawaii’s Housing Market
For prospective buyers in Hawaii, rising escrow costs complicate affordability calculations. Monthly mortgage estimates that focus primarily on interest rates and purchase prices may understate the true cost of ownership if insurance and tax trends are not fully considered.
Higher escrow payments can reduce purchasing power, effectively shrinking the price range buyers can afford, even when mortgage rates stabilize or decline. In competitive markets, that dynamic can limit buyer participation and slow transaction activity, particularly among first-time buyers.
For sellers, the impact is more indirect but still significant. As buyers become more cost-sensitive, properties with higher insurance premiums or tax assessments may face additional scrutiny. Transparency around escrow-related expenses could become increasingly important in marketing homes, especially as buyers compare total monthly costs rather than headline prices.
What Homeowners Can Do to Manage Escrow Volatility
The sharp increase in escrow payments underscores the importance of proactive financial planning for homeowners. Reviewing annual escrow statements carefully can help identify changes in insurance premiums or tax bills before they result in large payment adjustments.
Homeowners may also benefit from periodically shopping for insurance coverage, where possible, to ensure they are receiving competitive rates. While options can be limited in certain markets, even modest premium reductions can help slow the growth of escrow payments over time.
Setting aside additional savings to cushion against future escrow increases can also reduce financial stress. Lenders typically conduct annual escrow analyses and may adjust monthly payments upward to cover projected shortfalls. Being prepared for those adjustments can help homeowners avoid surprises.
A Hidden Cost of Gaining Visibility
Escrow payments have long been a background component of homeownership. But it’s been overshadowed by interest rates and home prices. However, the nearly 50% increase experienced by Hawaii homeowners since 2019 illustrates how quickly this “hidden” cost can grow into a major affordability challenge.
As housing markets adjust to new economic realities, escrow volatility is likely to remain a defining feature of homeownership, not just in Hawaii, but nationwide. For residents of the islands, awareness and careful planning will be essential to managing this growing expense and maintaining long-term housing stability.
Sure, escrow may never command the same headlines as mortgage rates. However, rising influence on monthly budgets suggests it will play an increasingly important role in shaping who can afford to buy, keep, and sustain a home in Hawaii in the years ahead.
