If you are in the process of buying a home, or have ever heard a conversation about purchasing a home, odds are you have heard the term “escrow”. But do you know what that means? Let’s dive into what an escrow is and how escrow works.
What is escrow?
As it relates to mortgage, escrow is essentially a savings account managed by your lender or loan servicer that holds a portion of each monthly payment that will be used to cover your estimated property taxes, homeowners insurance and/or mortgage insurance premiums. You can also use an escrow account to pay for renovations, such as adding a swimming pool.
Does escrow pay property tax?
Paying for property taxes is one of several uses for escrow funds. A mortgage escrow account can also be used for homeowners insurance, renovation or construction disbursements and various other homebuying related expenses.
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How long do I pay escrow on my mortgage?
How long you pay escrow on your mortgage is based on the terms of your escrow agreement. Usually, escrow payments can last for the life of your loan as the funds can be used for paying property taxes and homeowners insurance, plus certain loan types require an escrow account. However, you can talk to your loan servicer to find out if removing your escrow account is a possibility for your situation.
Why did my escrow go up?
Wondering why your mortgage payment went up? That could be because your escrow payment increased. Your escrow can go up because of a number of reasons, such as increased property taxes or higher homeowners insurance premiums.
Escrow shortage meaning
There may come a time when you have an escrow shortage. An escrow shortage means there aren’t enough funds in the escrow account to cover the fees the funds are needed for, or the account goes negative. Sometimes this can happen if the cost of the fees paid for with escrow funds increases or the funds were advanced for a payment.
Can you get a refund from escrow?
Every year your escrow account is reviewed to ensure there are enough funds to cover your upcoming expenses. If your servicer discovers that the account has more than enough funds to pay for your annual fees, you may be able to receive a refund for the amount left over after the payments are made. Typically, an escrow account can have excess funds available when your fees lessen, your insurance payment lowers or if you need to pay fewer taxes.
Understanding how escrow works is just one part of the mortgage process. Our mortgage experts will be by your side throughout your entire mortgage journey to help you through closing day and beyond. Contact us today to get started.
