August 2014 Newsletter
When purchasing a house, you may choose, or be required, to have an escrow account established by your lender to pay the required real estate taxes, homeowners insurance, and if applicable, mortgage insurance on your behalf. Setting up this escrow account beforehand ensures that those bills are paid in full and on time, without having to save large amounts of money and worry about keeping track of due dates. By taking out a portion of these funds every month with each mortgage payment, the lender collects for deposit into the escrow account to pay these annual fees. The monthly escrow account will change throughout the life of the loan. This is because real estate taxes and homeowners insurance premiums may increase or decrease annually.Each year, the account is reviewed to make sure the escrow portion of the monthly mortgage payment accurately reflects the projected real estate taxes and homeowners insurance premiums. A monthly escrow amount is determined by calculating the amount that is to be paid over the course of 12 months for your real estate taxes, homeowners insurance and, if applicable, mortgage insurance premiums. This estimated amount is then divided by 12 and added to the customer's monthly mortgage payment.
Since the projected payments are actually just a determination based on different variables, there could be escrow shortages and/or overages. If the real estate taxes or insurance premium paid from the escrow account were lower than expected, the account may have a shortage. If the real estate taxes or insurance premiums paid from the escrow account were lower than expected and the account is current, you may receive a refund check, or the overage amount could be applied to your first new monthly escrow payment.