What is an escrow account and why do you need one?
This can be a little confusing, so I want to explain this very short and simple. Odds are if you are currently a home owner you have an escrow account. If you are looking to buy a home, most likely you will have to have one.
An escrow account is included in your monthly mortgage payment. Your mortgage servicer uses this account to pay your homeowners insurance premiums, property taxes and (if applicable) flood insurance for your home. This insures that your taxes and insurance will get paid. IF you didn’t put 20% or higher down, or if in refinancing didn’t have minimum of 20% equity in the home you are required to have an escrow account. If you do put 20% down or have 20% equity you have the choice to “waive” escrows, but could come with the possibility of higher interest rate or may involve a cost (which is not an option) to do this.
The rationale behind an escrow account is to ensure that your taxes and insurance premiums if your financial situation deteriorates will get paid. An escrow account protects the lender’s financial interest in your property.
You should always check your monthly mortgage statement to ensure that your insurance and taxes are being paid. Ultimately you are responsible if the payment is late or missing. So if you should notice they are not getting paid by your servicer then you will need to rectify the situation immediately, especially since they are collecting the payment from you.
If you have any questions, please give me a call or send me an email.
Summit Mortgage Corporation
303-779-0591 ext. 101