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What is an Escrow Payment, and Why Does it Change?

July 28th, 2011

Homebuyers are often required to have an escrow account when they get a mortgage.

What is an escrow account, you ask? It’s a third-party account that holds funds that go towards property taxes and monthly homeowners insurance. Your escrow payment is typically combined with your monthly mortgage payment to create one transaction, making it easier for homeowners.

Buyers are usually required to deposit at least 12 months worth of homeowners insurance and at least 6 to 12 months worth of property taxes into their escrow account when they first get their mortgage. As those funds dwindle, buyers will then need to deposit money into the escrow account on a monthly basis.

And as Justin McHood explains in the article “Why Did My Escrow Payment Go Up,” the amount of your escrow payment can change. So, even if you’ve locked in a mortgage rate, you’re monthly payment can go up or down due to your escrow.

Unfortunately, escrow is more likely to cause your monthly payment to go up than down.  As you probably know, the amount you pay in taxes can change on a yearly basis, and you’re more likely to see an increase than a decrease.

Property taxes can also change with modifications to your property. As McHood says,

For example, suppose you bought a newly built house in 2011. The tax assessment on the property may only take into consideration the land value. But, when the property is assessed again, it will take into consideration the land value, plus the value of your home, which will increase your property taxes and, as a result, increase your escrow payment.

It is possible for escrow to go down due to property taxes, though. Escrow may go down if your property is assessed at a lower value due to decreased property values. Escrow payments can also go up and down due to a miscalculation of escrow when you took out the loan.

As for homeowners insurance, the fees are much more likely to increase than decrease, though the increase is usually small.

Acadia Lending Group LLC

190 Riverside Street Unit 4B
Portland , Maine 04103

Phone: 207-899-4500

Fax: 207-899-4503

NMLS: 370636

 

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