Get the Facts about Escrow Accounts

Whether you are purchasing a new home or you are considering applying to refinance your home, chances are the lender will set up an escrow account. These accounts are often a source of confusion for homeowners.

In reality, these accounts benefit the homeowner and help protect the lender.

What Is An Escrow Account?

Escrow accounts are sometimes called “impound” accounts. These accounts are set up to help manage payments of property taxes and homeowner’s insurance.

Depending on the time of year that you close, you may be asked to pay as much as one-quarter of these upfront and they will be put into the account for the purposes of making future payments.

Who Controls Escrow Accounts?

While Escrow accounts are regulated by laws, lenders have control over escrow accounts. Homeowners however, are entitled to receive an annual statement advising them of their escrow balance.

If there is an increase or decrease in insurance payments through the year, a homeowner may request the lender evaluate the escrow account and change the amount that is paid.

Is Interest Paid On Escrow Accounts?

There is no mandate to pay interest on escrow accounts. When you refinance your home, the funds for your taxes and insurance are calculated into your overall payment. Generally speaking most lenders do NOT pay interest on escrow accounts.

What Happens If I Sell My Home Or Refinance?

When you sell or refinance your home, you will be reimbursed the balance in your escrow account. This can be done in two different ways. Either your escrow account will be credited at closing, or it will be sent to you as a check a few weeks after closing.

What Happens If There Is Not Enough/Too Much Money In Escrow?

If your lender has underestimated your escrow payments, they may request you send an additional payment to make up the difference. In most cases, shortfalls or overages of $50 or less are typically not a major concern. In the event you are paying too much into escrow, your lender has the discretion to release the overage amount directly to you.

If your lender requires you to have an escrow account for the taxes and insurance portion of your mortgage payment, it can be very helpful. Escrow accounts help ensure you do not have to come up with a large payment once a year for insurance or quarterly for taxes.

If you have any other questions regarding escrow options, you should contact your mortgage professional.

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