by Shawn Tihen, Bankers Home Lending, (314) 520-3649
By now, you have probably received your “Escrow Account Analysis” in the mail from your mortgage lender. Like most of us, you probably asked “What does this all mean?”
Escrows are the monies you set aside each month with your lender to pay your taxes and homeowner’s insurance when they come due. Taxes in Missouri are due at the end of the year and the premium for your homeowner’s insurance is due annually from the date of your policy inception.
When you closed on your loan, we deposited the proper amount of monies into your escrow account so that amount plus your monthly escrow contribution should cover the payments as they come due. It’s also important to note that by law a lender keeps a two to three month cushion in this account to accommodate minimal increases in your taxes or insurance.
If the amount of taxes or insurance paid is lower than anticipated, then this creates an overage in your escrow account and you are due a refund. If, as usual, the amount of taxes or insurance due is higher than anticipated, then this creates a shortage in your account and this causes you to owe more money.
In general, the big culprit of these shortages is your tax bill. Property taxes are re-assessed every two years with the most recent assessment in 2007. There was a substantial increase in taxes, so you most likely had an escrow shortage. Therefore your lender presented you with two options.
Send them a check upfront and they will adjust your monthly payment by a smaller amount so you aren’t short the next time those bills come due.
Send them nothing and your payment will adjust by a larger amount to make up for the shortage and to make sure you aren’t short the next time those bills come due.
My recommendation has always been option two, but of course every situation is different.
30 Year Fixed 6.375% with 0 points
15 Year Fixed 5.875% with 0 points
FHA 30 Year Fixed 6.125% with 0 points