The Mortgage Corner with GreenState Credit Union – September edition : When Property Taxes or insurance premiums change , it can impact your monthly payment

The Mortgage Corner with GreenState Credit Union – September edition

Did you recently get a tax bill from the county, and you are curious what that means for your mortgage payment. We’ll take a few minutes below to explain. If you have property taxes included in your monthly payment, then your mortgage company also got a copy of that bill and will prepare an escrow analysis to adjust your payment accordingly Just be sure you are escrowing, if not you are responsible for that tax bill. Let’s take a few minutes to explain what an Escrow Analysis is!

To understand what an escrow analysis is, we must first understand what an escrow account is. An escrow account is an account established at the time of mortgage closing to hold the property taxes and insurance premiums. When an escrow account is established the monthly payment due from the borrower will include the actual loan principal and interest, plus the monthly equivalent of the property taxes and insurance premium for the home. When the taxes and insurance items are due, they are paid by the mortgage lender from the homeowners’ escrow account.

Now that we have that understanding, let’s walk through what an escrow account analysis is. An escrow analysis happens annually for anyone who has an escrow account set up with their mortgage. Property taxes and insurance premiums can adjust annually, which requires the lender to determine if they are collecting the right amount from the borrower monthly to pay the upcoming premiums. In addition to ensuring the appropriate amount is collected monthly, the lender is required to always have a two- month cushion in the escrow account to handle any increase in premiums. These two calculations could impact your monthly payment going forward.

Why is my monthly payment changing?

If the upcoming billable amount for property tax or insurance has changed, the lender needs to adjust how much they are collecting from the borrower – which in turn will adjust the monthly payment due.

How often is an escrow analysis done?

An escrow analysis is done once a year, typically in the fall, after the annual property tax assessments have been sent to the homeowner. The escrow analysis statement will advise the borrower when any payment changes would take effect.

What does an escrow shortage or surplus mean?

If the analysis shows the taxes or insurance have changed and the lender does not have a two- month cushion at any time over the upcoming 12 months, then the escrow account will have a shortage. If the property taxes and insurance have gone down and the lender is holding more than a two-month cushion, the escrow account will have a surplus and be refunded to the borrower.

What do I do if my escrow account has a shortage?

The escrow analysis will provide you with an option to pay the shortage in full at one time, or you can spread it out over your loan payments.

What do I do if my escrow account has a surplus?

If the escrow analysis determines you have a surplus, your lender will send you a refund.

Phew, still with me? That was a lot of information – the biggest take away is that reviewing your escrow analysis can be intimidating! We are here to help you navigate these documents and understand how it impacts your monthly payment.

Contact any of our mortgage experts with questions after you review your escrow analysis
statement. www.greenstate.org/mortgage