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Understanding Your Escrow Account
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Understanding Your Escrow Account
Escrow accounts are used to make payments on your behalf for real estate taxes and premiums for insurance required to protect the property, such as homeowners insurance. To make those payments, we collect escrow funds as part of your monthly mortgage payment. This ensures that your bills are paid in full and on time.
FAQs about Escrow BasicsWhere can I find more information about my escrow account?
For additional escrow account information, you can:
Access your mortgage account online through Servicing Digital
Check your annual escrow account disclosure statement mailed to you in January (this statement is not currently available online)Can I delete my escrow account and pay my own taxes and insurance?
ServiSolutions does not allow the deletion of the escrow account.Does ServiSolutions pay interest on escrow?
No. ServiSolutions does not pay interest on escrow in accordance with applicable state and federal laws.How is my monthly escrow amount determined?
To determine your escrow payments, we:
Estimate the amount we’ll have to pay over the next 12 months for your real estate tax and homeowners insurance bills. We base this estimate on information from your loan closing documents, your taxing authority and insurance company, or your previous tax and insurance bills.
Divide the estimated amount by 12 and add the result to your monthly payment.
Determine whether any adjustments, such as shortage payments, are necessary to keep your escrow account in balance.Will my monthly escrow amount ever change?
It may. We conduct an escrow analysis annually to make sure we’re collecting the right amount to cover your projected taxes and insurance premiums. If these payments increase or decrease, we’ll recalculate your escrow payment. This is separate from the calculation to determine whether you have a shortage or overage, so your payment amount could increase even if you pay your shortage in full.
An escrow analysis is a periodic audit of escrow receipts to see whether your monthly payment is adequate to pay for taxes and insurance. Increases or decreases in your annual tax or insurance bills may cause your monthly mortgage amount to change. If bills paid from your escrow account before the escrow analysis were higher than expected, your account may have a shortage. If they were lower than expected, your account may have an overage. After each escrow analysis, we’ll send you an escrow account disclosure statement by mail.
ServiSolutions analyzes all escrow accounts annually.
FAQs about Escrow AnalysisWhy has my homeowner insurance premium changed?
You will have to contact your insurance agent to discuss your policy and/or premium changes.Why has my property tax increased?
You will need to contact your local property tax assessor’s office to discuss your property taxes. Please be sure the tax assessor has your correct homestead and/or exemption status on file.How can I pay my escrow shortage?
You can pay an escrow account shortage in one of two ways:
You can mail a check to our office to repay the full amount of the shortage referenced in your most recent escrow analysis statement. Please indicate “escrow shortage” on the check for proper application.
Pay the amount over 12 months, with 1/12 added to each monthly mortgage payment. We’ll do this automatically if you don’t pay the shortage in full.
If the shortage is less than $1, you won’t need to pay it at that time. Note that even if you pay your shortage in full, your escrow payments could still increase.What happens if I have an overage?
If your account is current, we’ll send you a refund check if the overage amount is $50 or more (you’ll see this transaction listed as an Escrow Refund on your account). If the overage is less than $50, we’ll apply that amount to your payment.Why does my account require a minimum balance and how do you determine the amount?
A minimum balance helps ensure that if taxes or insurance premiums increase, your account can cover them without ending up with a large shortage. Minimum balance requirements are governed by federal law, or by your loan contract and applicable state law. The minimum balance is equal to two months of escrow payments (not including mortgage insurance), unless state law or your loan contract requires a lesser amount.Can I request an escrow analysis at any time?
Yes, you may contact Customer Service to request an escrow analysis except when accounts are within 60 days of the annual analysis period.What is a midterm policy change?
This is when you make changes that may affect your insurance premium outside your renewal period. If changes are made midterm you will be responsible for requesting a refund for any used premiums from your previous provider and making payment in full to your new provider. Your new provider may forward ServiSolutions proof of payment along with the evidence of insurance or declarations page to the attention of the Insurance department. You will be subject to a $7.50 midterm policy change fee. If you wish to have your monthly payment adjusted due to the change please send a written request for an escrow analysis to be completed.
Escrow Analysis and Rebalance for Homeowners
Escrow Analysis And Rebalance If you currently have a mortgage AND have an Escrow Account then this page may be applicable to you. You may also want to check out our page on New Construction Escrows if you bought (or are buying) a newly constructed home. Cushion and Reserves An escrow account does include a …
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Escrow Analysis and Rebalance for Homeowners
Escrow Analysis And Rebalance
If you currently have a mortgage AND have an Escrow Account then this page may be applicable to you. You may also want to check out our page on New Construction Escrows if you bought (or are buying) a newly constructed home.
Cushion and Reserves
An escrow account does include a cushion (or reserves) to account for any increases in your taxes and insurance that may occur over time. Every year your mortgage servicer will conduct an Escrow Analysis to monitor this cushion and will adjust your monthly payment accordingly to ensure that they will have enough funds in the escrow account to pay for the full property tax bill and annual insurance premium. (Note: your monthly payment will only change as it relates to taxes and insurance; none of the terms of loan such as interest rate, loan amount, etc. can be modified). Escrow accounts are regulated by the government so by law an escrow account is only allowed to contain a certain amount of cushion. Despite the 3 months of taxes and insurance collected at closing, an escrow account typically has about 1 month of “cushion” for both your taxes and insurance.Example: an escrow account for a purchase loan closing August 1st would initially be funded with 11 months and the buyer’s first mortgage payment would be due October 1st. This means that 2 of the 3 months of the initial cushion essentially funded the months of August and September when payments were not being required; hence the 1 month of cushion that remains. Moreover, when the mortgage servicer pays the annul tax bill (typically in December) the escrow account will contain at least 13 months of property taxes (the initial 11 months collected at closing plus 2 monthly payments from October and November).
Every year, typically around February, mortgage servicers conduct an escrow analysis to ensure that your escrow account is adequately funded. Escrow accounts are regulated by the Federal Government and mortgage servicers are only allowed to collect a certain amount of reserves. The escrow analysis will determine if there is a surplus or shortage in your account and mortgage services will then adjust your monthly payment accordingly. (Note: the loan’s terms – such as interest rate, loan duration, P&I payments, etc. – cannot be altered.
While rare, it is possible that an escrow account is over funded. When property values, tax rates, or insurance premiums decrease there could be a surplus in your escrow account. If there is a surplus (meaning too much money has been collected) a mortgage servicer will refund you the excess amount and lower your monthly payments based off the most recent property tax amounts and insurance premiums.
As property taxes and homeowner’s insurance premiums increase over time, escrow shortages will occur and an adjustment will be made to your monthly payment (i.e. your payment will increase). If there is an escrow shortage in an escrow account a mortgage servicer will typically offer two options:
request that you write a check for the immediate shortage AND they will increase your monthly payment by the appropriate amount
if you can’t pay for the shortage amount via check, the mortgage servicer will not only increase your payment to offset the recent increase, they will also increase your payment for 12 months to recoup the shortage amount. For example, let’s assume property taxes increased by $1,200 in one year which resulted in an escrow shortage of $600 and the homeowner couldn’t pay the $600. The new payment could be adjusted $150 higher per month – $100 to account for the $1,200 annual increase AND $50 per month to recoup the $600 shortage over a 12 month period. Assuming the taxes and insurance amount stay the same for the following year, the payment would then be revised downward by $50 since that $600 has been repaid.
We pride ourselves on educating our clients and ensuring that they know what to expect before, during, and after the loan process. Please feel free to call us if you have any questions about your escrow account – even if we didn’t originate the mortgage. We’re here to help.
PS. We have heard of instances where a refund is issued by a Mortgage Servicer in error AND even when the client tried to give back the money the bank wouldn’t accept it, only to then have the bank request the money back a number of months later.
Why Did My Mortgage Go Up?
A change in your mortgage payment can be jarring, especially if you don’t know why it happened. Learn about some possible reasons for the change here.
Why Did My Mortgage Go Up? Factors That Can Change Your Monthly Mortgage Payments
MOLLY GRACE6-MINUTE READ
MARCH 04, 2022 Share:
You closed your loan and your mortgage payment hasn’t changed since. You make your payment every month, and everything settles into a nice pattern of normalcy. It’s all very pleasant.
Suddenly, there comes a month when your mortgage payment has gone up. What’s the deal?
Most of us tend to assume, at least in the short term, that our housing costs will remain fairly steady. An unexpected change to our monthly mortgage payment can come as a bit of a shock, not just to us, but to our budgets as well.
Can My Mortgage Payment Go Up?
It’s true that your mortgage payment can go up. You may be surprised to learn this, especially if you have a fixed-rate mortgage. But the truth is, it’s possible for your monthly mortgage payment amount to fluctuate several times throughout the term of the loan.
If your monthly payment has gone up or down, the first thing you’ll want to do is figure out why. Here are the biggest reasons your mortgage payments change.
Property Tax Changes
Your property taxes going up or down can cause a mortgage payment change. Most people pay their taxes and insurance into an escrow account. Escrow accounts are helpful because they mean you don’t have to pay your entire tax bill in one shot. Instead, your taxes are spread out in equal payments over the course of the year.
If there’s a shortage in your account because of a tax increase, your lender will cover the shortage until your next escrow analysis. When your analysis takes place, your monthly payment will go up in order to cover the time you were short and to cover the increased tax payment going forward. Your mortgage servicer only does an escrow analysis once a year, and it won’t necessarily be the same time that your property tax is evaluated.
Some good news is that your tax payments will only change in certain situations.
Occasionally, your property value will be reassessed, and this will cause a change in your taxes that may cause your mortgage payment to go up or down.
Different locations have different requirements for how often property value is reassessed. It could be once every year or two, or a city may choose to reassess only when a house changes owners.
The loss of property tax exemptions can also drive your mortgage payment up. Some states and municipalities require that you reapply for your exemptions every year.
This aspect of your property taxes may also cause confusion if you’ve gotten a tax bill estimate from the previous homeowner. They may qualify for exemptions that you don’t and vice versa.
Contact your local tax office for questions about exemption eligibility or changes to your taxes.
If you have a mortgage, you’re required to have homeowners insurance. It protects both you and your lender against damage to your house. If you don’t have a current policy or yours has expired, your lender may find one for you.
If your lender finds the insurance, it may be more expensive than it would be if you shopped around for your own policy. This can cause your mortgage payment to increase.
A shortage can occur in your escrow account if you change homeowners insurance policies, and your lender has to make unanticipated payouts. This may also happen if there are increases in the cost of premiums, even if you have the same insurance carrier.
Adding An Escrow Account
As a homeowner, you sometimes have the option of choosing to have an escrow account or making your tax and insurance payments on your own when they come due. Borrowers may choose to have an escrow account added at some point over the term of their mortgage so they can stop making lump sum payments.
Why Did My Escrow Payment Go Up?
As we previously mentioned, if your escrow payment goes up, it’s typically due to an increase in insurance costs or taxes. However, if you don’t already have an escrow account, adding one will come with some new costs.
Adding an escrow account will increase your mortgage payment, in order to cover your monthly tax and insurance payments. You’ll also have to put in a little bit extra upfront in order to set up the account. The good news is that it won’t be more than one-sixth of your total escrow expenditures for the year.
If you miss a tax or insurance payment, your state or local government may choose to initiate a foreclosure or impose fines. To avoid this, a lender or servicer may require that an escrow account gets set up following a missed payment, to make sure the payments are made going forward.
Interest Rate Adjustments
Your mortgage payment also changes after a certain period if you have an adjustable-rate mortgage (ARM).
ARMs have a rate that’s generally lower than comparable fixed rates. After some time (usually 5, 7 or 10 years), the rate becomes variable and changes typically every 6 months to a year, riding the seesaw movements in the global financial markets. Your mortgage is then re-amortized over the remainder of the loan term at the new rate.
Your mortgage payment will go up or down as mortgage rates change. It’s important to note that there are limits to how much your rate can go up or down from the initial rate you were given.