Author Topic: Mortgage Escrow account  (Read 1417 times)

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Margo

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Mortgage Escrow account
« on: June 04, 2014, 02:46:31 PM »
In the 'never shopping there again' thread there are some recent posts about banks messing up by not keeping the correct amount in a mortgage escrow account, and comments about this having to be recalculated to take account of taxes etc. Can someone explain how this works? I'm not familiar with a mortgage escrow account, or having to recalculate mortgage payments due to taxes.

Here (England) my mortgage payments depend on the interest rates set by my bank - so unless the interest rates change, my payment is the same every month. I have part of my mortgage on a fixed rate, which means that for the life of the fix ( 3 years, in my case) *my* interest rate won't change, even if the bank's does. The other part is on the bank's standard variable rate, which may change if the Bank of England changes interest rates, but not otherwise.

My own income, tax status etc doesn't have any connection to what I owe the bank.


Mergatroyd

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Re: Mortgage Escrow account
« Reply #1 on: June 04, 2014, 02:58:35 PM »
When we had a mortgage, our property taxes were paid out of our mortgage payment- meaning one payment a month was slightly higher, and those funds were put into a separate account then sent to the city account on July 2 (the property tax due date.) If the bank did not pull out enough then we would have to top it up, but in ten years that never happened. All we had to do was sign the paper and return it to city hall once a year to confirm we still lived at that residence.
The only other escrow account I can think of is the one the lawyer holds for a month to make sure there aren't any other fees in the transfer of a property title? The bank has nothing to do with that though. At least ours didn't.
Now because have no mortgage, I either have to pay the property taxes in full by transferring the money to the city myself, or I can authorise an amount to be sent to the city every month and just top up with whatever is needed on the due date. (Sometimes they don't estimate right and you need to throw in a bit extra. If you over pay through the year then they transfer the balance remaining onto the next year.)

Kiara

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Re: Mortgage Escrow account
« Reply #2 on: June 04, 2014, 03:05:39 PM »
My escrow account holds the mortgage (fixed payment), my property taxes (change every 3 years based on the assessed value of the house), my citywide HOA fee (changes every 3 years based on assessed value), and my property insurance.  I pay the communty HOA on my own.  (Yes, I have two HOAs.  WHEE!)

My escrow amount doesn't change that much year to year - maybe $40 or so.  Most it changed was $100 a month after my first assessment - I didn't know I had to file for a homestead exemption to keep my property tax from changing.  With homestead, it can only change a certain percentage a year, so if the assessed value skyrockets, you don't immediately owe 20% more in taxes.

Knock on wood, I've never had a problem with it.  I've heard plenty of horror stories, though.

Hillia

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Re: Mortgage Escrow account
« Reply #3 on: June 04, 2014, 03:12:44 PM »
Escrow accounts are not always required; mortgages insured by certain agencies (for example, ours is an FHA mortgage, which means it's backed by the government) do require them.  The purpose is to prevent the house from being seized for nonpayment of taxes, or to be damaged with no insurance because the premium hasn't been paid.  It's all for the protection of the mortgage company.

At specified times each  year, the mortgage company estimates the various payments that will be made.  For me, it's property taxes, homeowner's insurance, flood insurance, and mortgage insurance.  Say this totals 3600 for the year.  Each  month, $300 is added to my base mortgage payment (principal and interest) and stored in an escrow account.  At the appropriate times, the mortgage company writes a check to the county for the property tax, and to the various other agencies for insurance etc.

Because these payments are variable, the escrow amount is recalculated at least once a year.  Say the original tax estimate was for $800, but the actual bill was for $920.  My mortgage payment will increase by $10 a month ($120/12) so that next year, there will be enough available to cover the property tax.  My insurance premium might go down, in which case the mortgage payment might go down, because the escrow account can only hold enough to make the projected payments plus a small surplus.

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jedikaiti

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Re: Mortgage Escrow account
« Reply #4 on: June 04, 2014, 03:20:03 PM »
Yep - here, if you have the escrow account, a bit of your mortgage payment each month is set aside to pay your homeowners insurance and property taxes. But since tax rates change, and they're basing the amount you put into escrow each month on past data, the next tax payment may be higher or lower than expected. Also, insurance rates can change. Here in the US, though, the interest rate on your mortgage won't change unless you refinance - essentially you get a whole new loan at a new rate, and that money is used to pay off the old loan.
What part of v_e = \sqrt{\frac{2GM}{r}} don't you understand? It's only rocket science!

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magicdomino

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Re: Mortgage Escrow account
« Reply #5 on: June 04, 2014, 03:27:01 PM »

My own income, tax status etc doesn't have any connection to what I owe the bank.

Your income, tax status, etc. doesn't have anything to do with escrow accounts or property taxes either.   :)  Property or real estate taxes are levied by local governments on land and buildings.  For instance, my county collects something like 1.09% of the value of my house each year.  The amount varies from year to year as the value of the house fluctuates, or when the county board of supervisors change the rate.

miranova

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Re: Mortgage Escrow account
« Reply #6 on: June 04, 2014, 03:43:39 PM »
The others have explained escrow accounts pretty well. I've also had lots of issues with them WAY overestimating my property taxes and thus setting payments much higher than necessary. It stinks, because I had no recourse, and they refused to change it until the real tax bill came in.  Sure enough, they owed me over $1000 back AND my mortgage payment for the next year went down.  At the time, I really could have used that money in my pocket monthly, and it was very irritating because I knew I was right and they just wouldn't budge.

The last time we refinanced, we specifically looked for a bank where escrow would not be required.  Now, we save $X per month ourselves in a savings account and pay our own taxes when they are due.  It is so nice not to have to deal with the endless mistakes.

Margo

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Re: Mortgage Escrow account
« Reply #7 on: June 04, 2014, 04:07:46 PM »
Thank you! that makes sense.

Here, property taxes and hm einsurance are totally separate from the mortgage. It's a standard requirement of the mortgage that you have buildings insurance, and there is a clause in the mortgage deed which will say that the bank can insure the property and add the premium to your mortgage debt, if you fail to insure, but I don't think it happens much.

Council tax is the onl annual property tax - it's worked out each year - each property is in a band, ranging from A (lowest) to H (highest) - which band your property is in is based on it's value, but it can only be reassessed and moved to a different band when the property changes hands.  The tax is worked out so that properties in the same band (within each Council) pay the same amount, there isn't a specific calculation for each house. I get a council tax bill in April which is then payable in 10 monthly installments.

The tax is set by each County, with some elements set by the district Council, so rates can vary from one part of the country to another. I got a nice surprise when I moved house this year, as although my new house is bigger and in a higher band than my old house, my actual tax is lower as I'm in a different county and the charges are lower.

Lynnv

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Re: Mortgage Escrow account
« Reply #8 on: June 04, 2014, 06:20:42 PM »
Yep - here, if you have the escrow account, a bit of your mortgage payment each month is set aside to pay your homeowners insurance and property taxes. But since tax rates change, and they're basing the amount you put into escrow each month on past data, the next tax payment may be higher or lower than expected. Also, insurance rates can change. Here in the US, though, the interest rate on your mortgage won't change unless you refinance - essentially you get a whole new loan at a new rate, and that money is used to pay off the old loan.

The bolded is correct if you have a fixed-rate loan.  There are, however, countless types of Adjustable Rate Mortgage (ARM) contracts.  So the rates can, and do, change within the parameters of the mortgage contract and with market changes.  They are very common in the US (though that may be somewhat regional, certainly).

In many cases the rate on an ARM is artificially low at the beginning of the contract, which lowers payments and makes it easier to qualify for since the qualification is usually based on the initial payment rather than on the worst-case scenario for future rate hikes.

My very first mortgage was an ARM.  It let DH and I get into a house despite the fact that his job was new and his income was not being counted in our qualification.
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jedikaiti

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Re: Mortgage Escrow account
« Reply #9 on: June 04, 2014, 07:31:03 PM »
Ahh yes... forgot about those!
What part of v_e = \sqrt{\frac{2GM}{r}} don't you understand? It's only rocket science!

"The problem with re-examining your brilliant ideas is that more often than not, you discover they are the intellectual equivalent of saying, 'Hold my beer and watch this!'" - Cindy Couture

CakeBeret

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Re: Mortgage Escrow account
« Reply #10 on: June 05, 2014, 12:44:56 AM »
I have had an escrow account for the 5 years I've owned this home. I like the convenience of it. I pay one payment per month that covers the mortgage, property taxes, and insurance. The escrow company is responsible for paying the tax and insurance bills, which is nice not having to deal with.

It does recalculate once per year, to account for fluctuations in taxes and insurance. It has always been within a $30 range, so no wild fluctuations. One year we owed about $50 at the end-of-year recalculation; we were given the option of sending a check for the $50 or paying it over the course of the next 3 monthly payments.
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Hillia

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Re: Mortgage Escrow account
« Reply #11 on: June 05, 2014, 01:27:30 AM »
I do like the convenience of the escrow account, and this  year I'm glad for another reason.  Due some major political shenanigans, the county treasurer is an incompetent, mildly corrupt person.  Between her and the political gamesplaying that got her in office, all of the experienced people quit the treasurer's department, and she had neither the experience to run the show or the initiative to learn on her own.  When the county finally put her on leave and went through her office, they found over $100k in undeposited property tax checks.

Since my mortgage company sent in the property tax, if there's any problem I won't find myself in the position of having to prove it was paid - they'll have to turn to their own records for payment history.

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Slartibartfast

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Re: Mortgage Escrow account
« Reply #12 on: June 05, 2014, 03:10:32 AM »
It's also worth noting that there are laws about how much the mortgage companies can hold in escrow - they can't just sit on a big pile of your money and say "yeah, we might need that."  So your total payment may go up or down based on things like "the government said we can take more" as well as actual changes in taxes and whatnot.

(I really hate when it changes, because I have ours set to automatically debit from our bank account.  When the amount due changes, the autopay fails and I have to go reconfigure everything!)

Margo

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Re: Mortgage Escrow account
« Reply #13 on: June 05, 2014, 04:12:28 AM »
Yep - here, if you have the escrow account, a bit of your mortgage payment each month is set aside to pay your homeowners insurance and property taxes. But since tax rates change, and they're basing the amount you put into escrow each month on past data, the next tax payment may be higher or lower than expected. Also, insurance rates can change. Here in the US, though, the interest rate on your mortgage won't change unless you refinance - essentially you get a whole new loan at a new rate, and that money is used to pay off the old loan.

The bolded is correct if you have a fixed-rate loan.  There are, however, countless types of Adjustable Rate Mortgage (ARM) contracts.  So the rates can, and do, change within the parameters of the mortgage contract and with market changes.  They are very common in the US (though that may be somewhat regional, certainly).

In many cases the rate on an ARM is artificially low at the beginning of the contract, which lowers payments and makes it easier to qualify for since the qualification is usually based on the initial payment rather than on the worst-case scenario for future rate hikes.

My very first mortgage was an ARM.  It let DH and I get into a house despite the fact that his job was new and his income was not being counted in our qualification.

Here you can get fixed rae mortgages but the fx is not for the whole life of the loan (typically 25 years) fixes are usually 1, 3  or 5 years, although there are some products with a 10 years fix.

Typically the fixed rate will be a bit higher than the variable rate at the start of the loan, but it does give you the comfort of knowing what your payments will be.

I currently have my mortgage in 2 parts - one part is on the variable rate , the other is on a 3 year fix.  At the end of the 3 years, I could remortgage and get a new fix if I want.

wolfie

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Re: Mortgage Escrow account
« Reply #14 on: June 05, 2014, 03:38:24 PM »
Yep - here, if you have the escrow account, a bit of your mortgage payment each month is set aside to pay your homeowners insurance and property taxes. But since tax rates change, and they're basing the amount you put into escrow each month on past data, the next tax payment may be higher or lower than expected. Also, insurance rates can change. Here in the US, though, the interest rate on your mortgage won't change unless you refinance - essentially you get a whole new loan at a new rate, and that money is used to pay off the old loan.

The bolded is correct if you have a fixed-rate loan.  There are, however, countless types of Adjustable Rate Mortgage (ARM) contracts.  So the rates can, and do, change within the parameters of the mortgage contract and with market changes.  They are very common in the US (though that may be somewhat regional, certainly).

In many cases the rate on an ARM is artificially low at the beginning of the contract, which lowers payments and makes it easier to qualify for since the qualification is usually based on the initial payment rather than on the worst-case scenario for future rate hikes.

My very first mortgage was an ARM.  It let DH and I get into a house despite the fact that his job was new and his income was not being counted in our qualification.

Here you can get fixed rae mortgages but the fx is not for the whole life of the loan (typically 25 years) fixes are usually 1, 3  or 5 years, although there are some products with a 10 years fix.

Typically the fixed rate will be a bit higher than the variable rate at the start of the loan, but it does give you the comfort of knowing what your payments will be.

I currently have my mortgage in 2 parts - one part is on the variable rate , the other is on a 3 year fix.  At the end of the 3 years, I could remortgage and get a new fix if I want.

So do you have to get a new fix every 3 - 5 years? What happens if you don't?