The home-buying process is known for having little nooks and crannies filled with things you never heard of, and people never told you about (and they usually cost no less than $100). That’s why I’m happy to spill the beans today about something good you may not have heard about: mortgage escrow accounts.
What is a mortgage escrow account?
In order to protect its investment (and keep it from getting seized by the government), your mortgage lender wants to make sure property taxes and insurance premiums are paid. This is most often accomplished by creating a mortgage escrow account that gets funded from part of your mortgage payment. It usually appears as a line item above the amount due.
Your escrow payment may fluctuate from year to year, but it has nothing to do with the interest rate on your mortgage. Rather, it has to do with your taxes and/or your insurance. Every year, your mortgage company is required by law to review your escrow account to make sure that you have been contributing enough to pay your taxes and insurance.
What is an escrow account shortage?
A shortage happens when your taxes or your insurance premiums go up and there is not enough money to cover it in the escrow account. Sometimes this happens when there is an unexpected disbursement tax, disbursement, or assessment.
What is an escrow account surplus?
Let’s face it, surpluses are rare. If you’re lucky enough, you may see your tax or your insurance rates go down — but I wouldn’t hold my breath.
I think paying into a mortgage escrow account is a good thing. All too often, first-time home buyers get overwhelmed by the sheer volume of work that owning a home entails. I’ve seen it happen: property taxes get delayed, then they get misplaced, and before you know it, the fines eat up all the money you set aside for talking holiday lawn ornaments.
Contact me with questions!