Comments on: Mortgage Escrow Accounts Explained

By: Ryan

Ryan — Thu, 19 Nov 2009 14:28:04 +0000

There are inherent dangers with escrows – but only for those who don’t take the time to understand how they work. My first home was a new construction property in IL. Taxes in that state are paid the following year. When I purchased the property, the existing tax bill was only $400 (on vacant land). I knew the taxes would grow to around $4600 for the year if the property was assessed at what I paid for the home.

The mortgage company was to collect $40 in tax escrow for about 6 months and reanalyze it every 6 months thereafter (because they couldn’t collect more than the most recent bill in my state). Every few months, I received a new payment coupon book with the tax analysis reflecting a payment increase – $100 increase per month the first time, then $200 increase a few months after that. After about a year or so, I was contributing about $350 per month to my escrow – I THOUGHT I was on track, but I wasn’t.

Another year went by and we refinanced because the rates dropped 2% – saving me about $550/month. Our escrow was refunded to us (as required by the fed) in an amount of $600 or so. 6 months after our refinance – having lived in the property for over 2 years – I received a new payment coupon book. The payment jumped $750!!! And yes, FIXED interest rate folks.

The tax escrow was $5200 short. Not only did the tax bill come full swing, but they also wanted me to pay what I was short in my escrows! It wasn’t until then that I found out that the $350 I was contributing for what I thought were taxes, was actually $150 for PMI and $80 for hazard insurance (which doubled without my knowledge from the preceding year). I was only contributing $120 or so a month to my taxes, which were just over $400/month. For two years I had been paying $270 to $350 LESS than what should have been collected from me to avoid a shortage. So needless to say, my new payment for the house became unaffordable for me – because I had to pay the full increased tax amount AND make up for the $5,200 shortage at the same time. YIKES!

But I don’t blame the lender. I don’t blame the township. I don’t blame anybody but ME for not knowing what I was paying for. Ignornace is bliss until you’re faced with the true gravity of the situation. 1st time buyers: pay attention to your tax escrows!!!

By: Patrick

Patrick — Sun, 15 Nov 2009 15:56:12 +0000

Linda, I am not familiar with banking procedures outside of the US. I recommend contacting your bank or mortgage broker for more information. Best of luck!

By: Linda Blake

Linda Blake — Sun, 15 Nov 2009 08:44:58 +0000

I have recently bought a property in Cyprus and the bank has sent me up to date statements which the property company arranged. There is 5,625 Euros sitting on one of the accounts which the bank tell me is an Escrow Account. I am allowed to use this to pay my mortgage payments? Or can I ask the bank to refund that money.

Thanks for your help.

Linda

By: Patrick

Patrick — Sat, 07 Nov 2009 15:49:17 +0000

Andrew, I can’t say for certain what happened with your escrow account, but it seems like the taxes and insurance may not have been correctly calculated for your mortgage payments. The escrow company usually pays these bills, so they likely cut a check for your insurance and property taxes, leaving a negative balance in your escrow, which is why they say you need to make catch up payments this year. The new payment should reflect your fixed rate mortgage, plus the cost of your property taxes and homeowners insurance, plus the amount needed to bring your escrow back up to its minimum level (most escrow accounts require a minimum amount to remain in escrow at all times). of course, I don’t know your exact situation, so this may not be the case. You best bet is to call your escrow company and ask why your rates were raised, what you can do to prevent this from happening again, and whether or not your rates will ever go lower than your current payments.

By: Andrew

Andrew — Sat, 07 Nov 2009 15:23:36 +0000

I am currently under chapter 13 protection and I recently recieved an escrow account disclosure statement. My monthly payment was 884.27 and they told me I have a new payment of 1,585.02 to pay for the outstanding balance due for escrow for the 2010 I will pay this amount for one year to catch up. I don’t understand how this happened, could you please give me some advice to see what I can do to stop this from ever happening again. Also on my paperwork this says that the payment will stay like this after I ve made my payments for one year to cover the escrow. I wanted to know if my payment can ever go back to what it was or what can I do to fix this. I have a fixed rate mortgage and now they have doubled it. I don’t understand what I can do. Please help ASAP. Thanks for your time.

By: circee

circee — Wed, 04 Nov 2009 17:18:37 +0000

escrow is a wasting money. the department suppose to be a third party, but believe me they are not. the expensive insurance they provided when people have ellaps in coverage is the same company; believe they want to make money as any how and any way, please do not take escrow on your morgage because they are not working for you but for the bank. if anyone have escort, i will advace you to start geting it cancel because it take a long time to get it process.

By: Patrick

Patrick — Tue, 20 Oct 2009 01:25:57 +0000

Some lenders require it, and it sounds like that is the case with your lender. Some lenders will allow you to forgo an escrow account if you can prove you have a certain amount of liquid assets, but that is not always the case. I don’t know what action to take if your lender will not agree to remove the escrow account.

By: maria

maria — Mon, 19 Oct 2009 23:49:21 +0000

When I first bought my home, I didn’t have an escrow account. My mortgage lender was then sold to another lender. They are now paying my taxes, and developed an escrow account for me. I didn’t ask for this and they told me that its going to continue. What can I do to make this escrow account end?

By: Julie Sutton

Julie Sutton — Tue, 22 Sep 2009 19:13:16 +0000

The other escrow service has been collecting the money for taxes and insurance all year. they said that escrow money would be moved into the new account escrow. By March the noney will be there for ins. I can’t understand why they want it twice…

By: Patrick

Patrick — Tue, 22 Sep 2009 18:31:47 +0000

Julie, it’s probably a policy of theirs to request the money up front. You may be able to convince them to waive that requirement if you can prove you have the money with your other escrow service or if you have sufficient funds in the bank to cover your homeowner’s insurance.