Monthly mortgage payments often include not only principal & interest, but also payments to an escrow account for property taxes, and for homeowners insurance (HOI). The amount collected for escrow per month is 1/12 of the annual premium for these two items. For example, if your property taxes are $2400/year, you would pay $2400/12 = $200/month into the escrow account. Likewise, if your HOI is $1200/year, your mortgage company would collect $1200/12 = $100/month for HOI escrow.
By collecting these payments monthly and depositing them into an escrow account, your mortgage company can then pay your annual HOI bill and your semi-annual property taxes on your behalf. This can be helpful so that you don’t have to budget for these large and infrequent bills. It also ensures that these items are paid in full, and on time. When you pay off your loan (often by refinancing or selling your home), you will receive any escrow balance back from your mortgage company within a few weeks.
Each year, your mortgage company will evaluate your escrow account to be sure you have sufficient funds, as the tax rates and HOI rates can change. If too much escrow money has been collected, expect a check from your mortgage company. More likely (unfortunately), your monthly escrow will need to be increased as tax and insurance rates go up, and your monthly payment may increase slightly to cover the additional costs.
An escrow account is typically required on loans where the loan-to-value (LTV) is greater than 80%. At 80% LTV or less, escrows can be waived if you choose, allowing you to pay these bills on your own if you prefer. Not all mortgage products and mortgage companies will allow you to waive an escrow account, so be sure to ask us at LendSolid about this option if it interests you, and we can review the pros and cons with you, so you can decide what works best for your unique situation!
To learn more about how we can help you with your particular situation, please email or call us today at (301) 325 2542.