Why was I charged extra money for Escrow?

Question

I was charged an additional $300.00 that I need to pay on my next month's bill. The taxes went up about $250.00 and my coupon book says I need to pay $20.00 more per month because of that. What I do not understand is why I am hit with a heavy $300.00 escrow bill that I need to pay now. Is this something that is going to happen annually? Last year my monthly payment decreased. I am a new homeowner and I do not understand this procedure nor is my mortgage company able to explain it to me so that I understand the process. Thank you very much.

Answer 1

Every year the mortgage servicing company will recalculate your monthly payment based on the actual expenses for taxes and homeowner's insurance. It's pretty common for it to be a bit high on the first year, be adjusted downwards on the second year as a result and then bounce up again in the 3rd year. My mortgages had always fluctuated like that from year to year, until I got out of the impounds game entirely several years ago -- more on that in a moment.

If the reconciliation comes up short, the normal practice is to amortize the shortfall over the next year's worth of payments. If the shortage is too much, some servicing companies will demand an extra payment to level things out. Others will let you decide -- make a one time catch-up payment or amortize it over the next year.

Basically the mortgage servicing companies are allowed to keep enough extra in your impound (or escrow) account to maintain a minimum balance in the account equal to two months worth of estimated real estate taxes and homeowner's insurance when the account's balance is at its lowest level. The calculations are confusing at best, but they are required to send you a statement that explains how they arrived at the amount that they are adjusting your monthly mortgage payment to.

In some cases it's possible to drop the impound account from your mortgage. Not all mortgage servicing companies will do this (Ditech.com, a division of GMAC does) but generally if you have excellent credit (FICO or Beacon score above 720 or so) they may let you manage your own property tax and insurance payments if you ask. You'll need a few years worth of on-time mortgage payments under your belt in most cases but it never hurts to ask. If you go this route, make absolutely sure that you budget for your expenses. That's pretty easy for your homeowner's insurance, just get a monthly payment plan from the insurance company. However, most tax districts require you to pay your taxes in full on demand. You'll either need to set aside funds every month for the estimated bills or take out a separate short-term loan to cover them.

Answer 2

I've been hit with such increases also, most, if not all, homeowners are. There's a possiblity that you have a choice of paying either the larger lump sum, or the slightly increased monthly payment. However, it's more likely that you'll have to pay both. If you can't afford the larger lump sum because you weren't prepared for it, then just give the mortgage company a call, they'll most likely be able to work with you by letting you pay it out over the next few monthly payments.

I don't mean to be the bearer of bad news, but my parents purchased a house a little more than 30 years ago. Their initial monthly payments for the mortgage and escrow totalled just under $100.00. By the time they paid off the house 30 years later their house payments were $360.00/month. This is because taxes and insurance are almost always sure to increase over time............the actual mortgage payment stays the same (as long as it's a simple loan, ARM loans are different).

To break it down, simple interest home loan monthly mortgage payments consist of the following:

1) Base Payment (a set amount that will not fluctuate, it consists of interest and principal) The interest decreases over the period of the loan, and the principal increases over the period of the loan, but the total of the two ALWAYS stay the same. The only exception is with the more complicated loans like ARM loans.

2) Escrow Payment. This consists of your property taxes and homeowner's insurance. Both of these are subject to fluctuations (usually increases) and are the reason why your monthly mortgage payment increases.

There's two things you can do to try to keep your payments from increasing. One is to protest your property taxes, you'll need to fill out a form with your local tax appraiser district in order to do this and you'll need to be prepared to give a good reason why your property taxes shouldn't be increased. The second thing you can do is to shop around for your homeowner's insurance. When your homeowner's insurance comes up for renewal, get quotes from a few other insurance carriers. But remember that one of homeowner's biggest mistakes is to be underinsured. Be sure that your coverage will completely replace the house at current market value if something were to happen.

Happy Homeownership! :o)

Answer 3

Each year the mortgage company estimates how much you will need in escrow to cover your taxes and insurance, whatever they are holding out the escrow for...........some years it will go up when you run short, and down if you have an overage in escrow
It is as simple as that.

I do not understand if they are making you pay the $300 all at once.
If it is a hardship, ask them if they will divide it up over time. If your payment went up just $20 per month over the year to cover that shortage, that is a good deal.

Answer 4

Usually, something like this means that your "cushion" has disappeared-- they required that you keep a certain amount in there to cover everything. Taxes are paid two times a year..... so if they had not yet increased it enough to cover the taxes, they need the $300 to cover the next tax payment AND THEN they are increasing your monthly bill so that this doesn't happen again-- unless your taxes go up yet again and they dont have enough to cover that.

Sucks, but it happens.

Answer 5

You really should be asking this of your escrow officer, not us. That would get you a complete and accurate answer very quickly.

Obviously, there has to be a fee of some sort (escrow people need to eat too). It should be a one time fee: once your transaction has closed, the escrow company's work is done and it no longer has a financial stake of any sort.

Answer 6

The name of the escrow officer is in your documents. If you're not sure, call the title company that handled the transaction and ask them about it. They'd be the best resource to answer your question, since they have the full file.

Answer 7

Sounds like your property taxes are going up. Sounds also that you need to take some course on home ownership because if you don't know what's going on in this escrow account, what else don't you know?. Hmmmmmm

Answer 8

I know that with my mortgage company if the taxes go up the company give me the choice of paying one lump sum or my monthly payment goes up.

Answer 9

I would say that since the closing attorney tried for 3 1/2 years to reach them to no avail, and even told them that if they didn't respond within 30 days that he was going to give you the money, that they shouldn't receive it. However since the original purchase agreement stated that they would, it may take precedence. You need to contact a lawyer and ask.

Answer 10

your escrow account pays you property taxes and some times you home owners insurance, if you recently used your home owners insurance you insuranse can go up.or even dropped some times if you dont have enough escrow in your account when payments due then they adjust it acordingly.