Understanding Escrow Accounts
An escrow account is a separate account held by a lender to pay property taxes and insurance on a borrower's behalf. The lender collects a portion of the annual taxes and insurance premiums with each monthly mortgage payment and holds it in the escrow account until the taxes and insurance are due.
The amount of money collected for the escrow account is typically determined by the lender, based on the borrower's annual property tax bill and insurance premiums. This amount is then divided by 12 and added to the monthly mortgage payment.
How Property Taxes are Paid from Escrow
When property taxes are due, the lender uses the funds in the escrow account to pay the taxes on behalf of the borrower. The lender will typically send a check to the county treasurer's office or make an electronic payment to pay the taxes.
The borrower will usually receive a statement from the lender showing the payment of the property taxes, along with any remaining balance in the escrow account. This statement will help the borrower keep track of their escrow account and ensure that their property taxes are being paid correctly.
Automatic Payment of Property Taxes
In most cases, property taxes are paid automatically from the escrow account when they are due. The lender will typically make the payment on behalf of the borrower, using the funds collected in the escrow account.
However, it's essential for borrowers to review their escrow account statements regularly to ensure that their property taxes are being paid correctly and on time. Borrowers should also be aware of any changes to their property tax bill or insurance premiums, as these changes can affect the amount of money collected for the escrow account.
Shortages and Surpluses in Escrow Accounts
If the amount of money collected for the escrow account is not enough to cover the property taxes and insurance premiums, the borrower may face a shortage. In this case, the lender will typically require the borrower to pay the shortage amount, either in a lump sum or by increasing the monthly mortgage payment.
On the other hand, if the amount of money collected for the escrow account exceeds the amount needed to pay the property taxes and insurance premiums, the borrower may be eligible for a refund. The lender will typically refund the surplus amount to the borrower, or apply it to the next year's escrow account.
Importance of Reviewing Escrow Account Statements
It's crucial for borrowers to review their escrow account statements regularly to ensure that their property taxes are being paid correctly and on time. Borrowers should check their statements for any errors or discrepancies, and contact their lender immediately if they notice any issues.
By reviewing their escrow account statements regularly, borrowers can avoid any potential problems with their property taxes and ensure that their escrow account is being managed correctly. This can help borrowers avoid any unexpected expenses or penalties, and ensure that their property taxes are being paid automatically and on time.
Frequently Asked Questions
How are property taxes paid from an escrow account?
The lender uses the funds in the escrow account to pay the property taxes on behalf of the borrower when they are due.
What happens if there is a shortage in my escrow account?
The lender will typically require the borrower to pay the shortage amount, either in a lump sum or by increasing the monthly mortgage payment.
Can I review my escrow account statement online?
Yes, most lenders offer online access to escrow account statements, allowing borrowers to review their accounts and track their property tax payments.
How often should I review my escrow account statement?
Borrowers should review their escrow account statements regularly, typically every 6-12 months, to ensure that their property taxes are being paid correctly and on time.
What happens if there is a surplus in my escrow account?
The lender will typically refund the surplus amount to the borrower, or apply it to the next year's escrow account.
Can I adjust my escrow account payments if my property tax bill changes?
Yes, borrowers can contact their lender to adjust their escrow account payments if their property tax bill changes, to ensure that they are collecting the correct amount of money for the escrow account.