Your monthly mortgage payment is likely to have been a major consideration when you bought your house. Your budget was set and you shopped for different lenders in order to get a rate and house that fit your budget.
Surprise! You’ve received a new payment, even though you still have the same rate. What has happened?
Your annual escrow account analysis is likely to provide the answer. Your lender will review your account once a year to make sure that you have enough funds to pay your insurance and taxes. This number will change if it changes.
Although it may be annoying to hear that you have to pay more money, this is not the fault of your lender. Taxes and insurance rates can also decrease. The amount you pay every month may be reduced if that occurs.
What is escrow?
Your monthly mortgage payment is usually four costs combined into one. This includes your mortgage principal, interest rate, property tax and insurance premium. Insurance premiums include your homeowners’ insurance, and if necessary, private mortgage insurance. The payments for your mortgage balance, interest and taxes are controlled by your lender. However, the insurance and tax payments will be held in escrow to distribute on your behalf.
You must keep in your account a certain minimum to pay for your entire bill. This amount varies from one place to another. Your lender may send you a difference check if they find that the account is overdrawn in an annual review. Your monthly payment may be reduced if the account has less money than necessary.
How to Read your Escrow Analysis
Within 30 days after completing the analysis, your lender must send you a statement of account. The statement includes:
The amount of your current mortgage payments, as well as the amount you pay towards the escrow.
Your monthly payment history and how much of it went to your escrow.
Total amount of money paid in to the escrow accounts during the last year.
Balance on account at end of period, showing how much has been paid for taxes and insurance.
What the lender plans to do with an excess balance, or what they will require in order for a deficit to be paid.
The difference between what was previously required and the amount of payment that is now due.
How to reduce your mortgage monthly payment
You have several options if your mortgage payment has risen to a level that you are not comfortable with.
Compare insurance companies. You might be able to find a cheaper deal elsewhere if your mortgage payments increased because your homeowners’ insurance premiums rose. You may be eligible for a lower premium if you have made renovations or improvements to your home that improve its safety. You may be charged a fee if you decide to cancel the policy before its expiration.
Modify or refinance your mortgage. You can reduce your monthly mortgage payments by refinancing your mortgage at a lower rate. This could offset a higher escrow balance. Refinancing and modification can be used to extend your loan. You would have more time to repay your mortgage and pay less each month. You’ll pay more in interest over time.
Private mortgage insurance can be dropped. You can drop PMI if you have 20% or more equity in your house and put less than 20% down when purchasing it with conventional financing. Your equity is not just the amount of mortgage payments that you have made. If your home is worth more now than it was when you bought it, this is also included.
Contacts for further information
You can ask your mortgage lender if there are any questions you may have about the escrow or you believe that you made a mistake in your calculations.
You can check the state website of your state’s revenue or treasury department to see if your escrow balance has increased due to an increase in your property tax. There may be a program that offers property tax relief. Nebraskans may be eligible for tax relief, such as if they are over 65 years old, veterans, or have a physical or mental disability.
Contact your insurer to explore the possibility of lowering your monthly premium if your homeowners’ insurance has caused your escrow balance to be higher. You may want to consider increasing your deductible or bundling home and car insurance.