Escrow shortages . . . what do you do?

[Deleted]

My escrow shortage is usually less than $50, but this year it is $200. That's because I filed a claim on my homeowner's insurance (grr). It was my first one in probably 30 years.

Normally, I just write a check. I started to today, but it isn't due until April 28. So I decided to think about it awhile. I hate for my house payment to go UP, but it will anyway. But then they will have to adjust it down next year () because they were collecting last year's shortage?

Tell me your experience. Like I said, I usually just pay it. And I probably will this time as well. But your opinons do help.

[❤ mollymouser ❤]

When we had a mortgage, we paid property taxes and insurance ourselves, so nothing changed for us.

[Gardening Grandma]

We don't have an escrow account. We pay the taxes and ins ourselves. I like it because it's easy to shop around for ins and switch if I want to.

[Deleted]

I finally got a mortgage without escrow at age 50. Even the house before that, where I put $100K down, the bank required escrow. The cynical part of me says that they're finally waiving escrow because the money they make on the float is too little to make it worthwhile, with interest rates so low.

But to answer your question- yes, the paymemnt will eventually go down. You may even get a refund of the excess in the account. Most states limit what % of taxes and insurance a bank can hold.

[illinicheme]

I've always just let my payment adjust, because I was too lazy to write a check to pay the shortage.

[zibazinski]

Why would your insurance claim effect your escrow payment?

[Plain Old Petunia]

Feb 1, 2011 19:36:17 GMT -5 zibazinski said:

Why would your insurance claim effect your escrow payment?

Because her insurance premium increased.

[Plain Old Petunia]

I would probably just pay it monthly, if it were me.

[zibazinski]

Who pays insurance through the bank?

[Plain Old Petunia]

Feb 1, 2011 20:22:29 GMT -5 zibazinski said:

Who pays insurance through the bank?

Lots of people. Escrow accounts for taxes and insurance are very common.

[zibazinski]

I've never heard of such a thing. Taxes, yes, but rarely, insurance, never. Is that what happens if you put nothing down or something?

[Plain Old Petunia]

Feb 1, 2011 20:27:14 GMT -5 zibazinski said:

I've never heard of such a thing. Taxes, yes, but rarely, insurance, never. Is that what happens if you put nothing down or something?

The second I in "PITI" is for insurance. I believe "PITI" is a very common term, though maybe not everywhere?

I think most lenders require escrow if you put down less than 20%. I have always had escrow accounts, whether required or not. I like them. I don't have to handle those payments myself. In my state, the lender must pay interest on escrow accounts, so there is really no downside IMO. I realize not all states require interest to be paid on escrow accounts, so YMMV.

[Deleted]

Feb 1, 2011 20:27:14 GMT -5 zibazinski said:

I've never heard of such a thing. Taxes, yes, but rarely, insurance, never. Is that what happens if you put nothing down or something?

Even if you put down a traditional down payment they can require it. The house before my current one I put down $100K and borrowed $250K. Before that, put down $100K and borrowed $200K. Both times an escrow account was required. The reason for the insurance escrow is that if you let it lapse and the house burns down, the bank is out a lot of money unless you have other assets.

These days, when interest rates are low, it's not worth it to lenders to hold your money and maintain departments to pay out taxes and insurance.

[zibazinski]

Even on my rentals I never had to escrow account so it is really weird to hear of this feature.

[Savoir Faire-Demogague in NJ]

Having taxes and insurance, etc., in escrow is very common and the practice has been around for many decades. Nothing unusual about it.

[zibazinski]

Weird. I have never heard of it and I have owned property in 3 states, south, midwest, and west.

[Deleted]

Feb 1, 2011 20:20:19 GMT -5 Plain Old Petunia said:

I would probably just pay it monthly, if it were me.

Ditto. This is what I would do and this is what I have done.

[TheOtherMe]

I have owned many houses and put 20% down. I've always had insurance and taxes in escrow.

On my current mortgage, once the property taxes are paid in March, I'm sure my payment will increase. My little town had an abatement for new houses, so the taxes were $340! They will be going up to about $1800 a year, so half of that will be due in September. I've got that amount set aside in savings for when the bank figures it out.

They will also increase the payment.

[schildi]

No escrow was one of the most important things I looked for when getting our mortgage. I would not want to have to rely on a bank paying my taxes and insurance. Plus, with escrow, it would be difficult to check that all payments you make are applied correctly. Without it, my spreadsheet confirms it moth after month when comparing the remaining balance. I have never had an escrow account, it sounds like a huge headache.

[Savoir Faire-Demogague in NJ]

Weird. I have never heard of it and I have owned property in 3 states, south, midwest, and west.

I've owned property in numerous states and escrow is pretty standard. I have had mortgages that did not require having escrow as well.

Maybe Phil can chime in, but this may have something to do with meeting FNMA or FHLMC requirements.

[Deleted]

Feb 1, 2011 22:28:27 GMT -5 @chef241 said:

It is a royal PITA if the bank makes a mistake, and when WF did, the insurer dropped our homeowners insurance. For payment of taxes, if the bank makes an error, the homeowner is not held harmless if the payment is not paid on time.

That's one of the things I hate about escrow (in addition to feeling like they think I'm too stupid to pay my own homeowners insurance and property taxes). Fortunately, I've always dealt with banks that made the payments on time. I'm glad my current mortgage with WF doesn't require escrow!

[Deleted]

It's interesting how people jump to conclusions here . . . me included. Some of you thought only subprime borrowers (or those required to have PMI) had escrow required. I thought just the opposite . . . only those doing "creative" financing were able to eliminate it.

[resolution]

I like having an escrow because it simplifies my monthly budget to just pay a fixed amount. When I get my annual escrow statement I just let it adjust and pay the difference monthly. They never charge interest for paying it monthly over the year instead of sending a check.

[schildi]

Feb 2, 2011 10:03:39 GMT -5 resolution said:

I like having an escrow because it simplifies my monthly budget to just pay a fixed amount. When I get my annual escrow statement I just let it adjust and pay the difference monthly. They never charge interest for paying it monthly over the year instead of sending a check.

Kari, I think you got that the wrong way. No, the bank won't advance money on your behalf without charging interest. With escrow, you are paying in advance, not the bank. So they actually should pay you interest instead of the other way around.

As I said above, escrow makes checking that all your payments (incl. the principal and interest) are applied correctly nearly impossible, you are lending money to the bank for free, and then there is the chance that the bank makes a mistake and forgets to pay your taxes and/or insurance (it happens again and again, btw). No thanks, no escrow for us!

[busymom]

I think it's time to take another look at your insurance, and shop around for something a little less expensive. Find an insurance broker in your area who works with more than one company, and you can always check at your library the ratings of the insurance companies, if the broker suggests a company you've never heard of. Sadly, insurance companies are famous for raising rates after you've filed a claim (even if you've only filed one claim). Best of luck!

[telephus44]

I just find it odd that when we refinanced, our mortgage company required escrow for taxes (less than 20% equity, we can remove it when we hit 20%) but REFUSED to escrow for insurance. Really weird.

If I were you, I'd just write the check.

[thyme4change]

In all the mortgages I've gotten, escrow was standard, unless you opt out. I didn't know you could opt out, and I wouldn't have anyway, with my first 2 mortgages - and my first one was sub-prime. It might have been required - I never asked. It was before YM.

[Plain Old Petunia]

Feb 2, 2011 10:14:55 GMT -5 schildi said:

.As I said above, escrow makes checking that all your payments (incl. the principal and interest) are applied correctly nearly impossible, you are lending money to the bank for free, and then there is the chance that the bank makes a mistake and forgets to pay your taxes and/or insurance (it happens again and again, btw). No thanks, no escrow for us!

How is it nearly impossible? I check mine each month with no difficulty whatsoever. I have been a homeowner almost continuously since 1989, have always had mortgages with escrow accounts, and have never had the slightest trouble checking the lender's calculated principal balance vs. my own as each payment is made.

If you prefer not to have an escrow account, that's fine. I just don't understand how it is nearly impossible to verify your payment was applied correctly if you have an escrow account.

[Plain Old Petunia]

Feb 2, 2011 10:03:39 GMT -5 resolution said:

I like having an escrow because it simplifies my monthly budget to just pay a fixed amount. When I get my annual escrow statement I just let it adjust and pay the difference monthly. They never charge interest for paying it monthly over the year instead of sending a check.

They don't charge you interest because your account has a minimum cushion. When you have a "shortage", that means your cushion isn't big enough, it doesn't mean you have a negative balance.

[thyme4change]

I don't find it difficult either - they use to send me a statement, now they have it on-line. I see how much was applied to interest (which should be the balance x rate/12, give or take a few pennies) and I see what is applied to principle, which should be the payment from the original paperwork less the interest (or the payment as calcuated by excel, or the old tables in my finance books, or my financial calculator, or a calculator on-line, etc.) and then the rest (my total payment less principle and interest) goes to escrow.

There is also usually an escrow summary section that shows the ins and outs of the escrow accounts.