What's a Mortgage Escrow Account?
If you live in DC like i do, you probably just got your Annual Escrow Account Disclosure from your lender. So what does that even mean?
The escrow account holds the amount you pay as part of your mortgage payment every month that accounts for your property taxes and possibly home owners insurance. Your mortgage payment is made up made up of principal, interest, taxes and insurance (PITI). Even though the amount of your mortgage principal and interest does not change over the life of your loan (unless you have an adjustable rate mortgage) the amount of your taxes and interest can change. Your lender projects the amount of your taxes and insurance for the year as best they can.
This year my taxes are going up slightly, so there’s a shortfall in the amount of my escrow account. You have two options to make up the shortfall:
Send a one-time payment to your lender for the amount of the shortfall.
Accept a new monthly payment amount that will makeup the shortfall over the course of the year.
The good news is that the Real Estate Settlement Procedures Act (RESPA) limits the amount of money that can be in your escrow account so if there’s too much you’ll get a check from your lender. This happened to me once in 6 years of owning and it was the first year, so don’t get your hopes up for a check every year. Usually, I send a check for the shortage.
