Let’s face it, buying a house isn’t as easy as it may seem. The world of home mortgages has its own set of jargon and industry terms that many don’t truly understand. While you don’t have to be an expert, it’s always recommended to educate yourself as much as possible. With that in mind, let’s talk about one of those terms that we regularly get questions about at Accunet Mortgage – escrow accounts.
Here we’ll give some clarity to what escrow accounts are and how they factor into your mortgage.
What is it?
When we’re discussing escrow accounts with clients, we’re talking about the money a mortgage lender, like Accunet, puts into a separate account, is paid at closing and is included in your monthly payment. This money is used by your lender to pay future property taxes and insurance premiums, like homeowners insurance and flood insurance.
How is it calculated?
At its most basic level, the amount you pay each month into your escrow account is calculated by adding your yearly insurance premiums with yearly property taxes and then dividing by 12 (for each month). This seems simple enough, but there are often fluctuations in property taxes and insurance rates. When that happens your monthly payment can increase or decrease, depending on the movement of your taxes and insurance.
This is why your mortgage lender will perform a yearly escrow analysis to determine if you have a surplus of money or not enough. If you have more money than needed, you will typically receive a refund of that money via a reduction in your monthly escrow payment. On the other hand, there are circumstances where your monthly escrow payment will increase. When that happens, your lender will give you options on how you’d like to handle it. This typically includes paying off the extra all at once or adjusting your monthly payment to make sure that there’s enough money in your account when the due date comes.
What are the benefits?
Many lenders require an escrow as part of its loan offering, but this is largely to your benefit. While this acts as peace of mind for the lender (knowing the insurance and taxes won’t go unpaid), having an escrow account allows you to more efficiently budget your money. You may think you can have a handle on it and are budgeting for these items, but many things, like unforeseen repairs, can change and potentially cause issues. With the lender handling this; however, you won’t have to worry about paying a large lump sum at the end of the year for real estate taxes or making that insurance premium payment.
This information will give you a general understanding of how an escrow account works, but in many ways it’s just the tip of the iceberg. While it’s great to know the basics, one of the most beneficial decisions you can make is to align yourself with a respected mortgage lender, like Accunet Mortgage. After all, these are the real experts in the field that will use their extensive experience to walk you through any questions or concerns you may have. When you position yourself with general knowledge and an esteemed mortgage lender, you’ll be assured that when it comes time to pay property taxes and insurance premiums, your money and your bills are taken care of.
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