Foreclosure Prevention – Escrow
What is an escrow account?
An escrow account is a savings account that is managed by your loan servicer. Each month, your loan servicer deposits a portion of your mortgage payment into your escrow account to cover your estimated property taxes and your homeowners and mortgage insurance premiums — all of which are billed annually.
What is an escrow analysis?
Every year, your loan servicer reviews your escrow account to determine whether sufficient funds have been collected to cover your tax payments and insurance premiums for the current year. This annual analysis determines whether your account has a shortage of funds or a surplus.
Keep in mind changes to what you owe for taxes and insurance are made by your taxing authorities and insurance providers, not your loan service provider.
What happens if there is a shortage? A surplus?
If, during the escrow analysis, your loan servicer discovers a shortage in your escrow account (your account has insufficient funds to cover the current year’s taxes and insurance premiums), you will receive a bill for the difference.
Conversely, if your servicer finds a surplus of funds (typically > $50), they will send you a refund for the difference once your taxes and premiums have been paid for the year.
How does the escrow analysis impact your mortgage payment?
The annual escrow analysis impacts your mortgage payment in two ways:
- It assesses your account to determine a shortage or overage for the current year.
- It adjusts your monthly escrow payment amount to anticipate your taxes and premiums for the following year. If your account has a surplus, your mortgage payment will decrease. A shortage? Your payment will increase.
How is my escrow payment calculated?
The formula is fairly straightforward. Your loan servicer simply adds your estimated property taxes, homeowners, and mortgage insurance premiums together then divides it by the number of payments per year. The amount is then added to the principal and interest portion of your mortgage payment.
Should you have questions about escrow—or any other real estate issues—please don’t hesitate to call or email the office. I’d love to connect with you.