Mortgage Minute

by Michael Scharfe

Mortgage Minute – Escrow Accounts

Escrow accounts are very common with mortgage loans, although not all mortgage loans require an escrow account. Escrow accounts are, essentially, a bank-controlled savings account that is used to pay the property taxes and insurance associated with your mortgage loan.

If your mortgage has an escrow account, a portion of your monthly payment will be placed into the escrow account to build up enough funds to pay your property taxes and insurance. Once a year, an analysis of the escrow account is done to determine if adequate funds are being collected from you to cover your taxes and insurance.

The escrow analysis will give a detailed look at how much was being collected from you and how much is being paid out. This analysis informs one of two things: that you have a shortage or an overage typically due to property taxes and/or insurance increasing or decreasing.

If there is a shortage, you will have the option of either paying a lump sum within a certain number of days to cover the shortage or paying this shortage amount over the next 12 loan payments. Even if you choose to pay the lump sum, your payments will likely increase to cover the increase in the taxes and/or insurance.

If the escrow analysis shows that there is an overage, you typically receive a refund.

With your escrow account, you have the option of paying extra towards this account throughout the year. This proactive approach can be beneficial if you know that your taxes and/or insurance are going to be increasing.

If you have questions regarding your escrow account, please reach out to your lender for more details.

Michael Scharfe has been a lender at First Security Bank for 10 years. Reach him at [email protected].