When you purchase a home with a mortgage loan, your lender may require you to set up an escrow account to cover certain expenses such as property taxes and homeowners insurance. Your monthly mortgage payment typically includes funds deposited into this account. But what exactly does your escrow balance mean? Let’s break it down.
What’s escrow balance mean?
Escrow balance refers to the amount of money held in your escrow account to cover expenses like property taxes and homeowners insurance. It’s essentially a separate account managed by your lender to ensure these costs are paid on time.
What happens to my escrow balance if I sell my home?
If you sell your home, any remaining funds in your escrow account will typically be returned to you at closing.
Can my escrow balance go negative?
Yes, if your lender has paid expenses on your behalf that exceed the balance in your escrow account, it can go negative. In this case, you’ll be responsible for bringing it back to a positive balance.
How often is my escrow balance reviewed?
Your escrow account is typically reviewed annually to ensure that the funds collected are sufficient to cover upcoming expenses.
What happens if there’s a shortage in my escrow balance?
If there’s a shortage in your escrow balance, your lender may give you the option to pay the difference in a lump sum or increase your monthly payments to catch up.
Can I request a refund of my escrow balance?
You may be eligible for a refund of your escrow balance if it exceeds a certain amount determined by your lender. However, it’s more common for any excess funds to be applied to future escrow payments.
Is my escrow balance different from my loan balance?
Yes, your escrow balance is separate from your loan balance. Your loan balance is the amount you owe on your mortgage, while your escrow balance covers expenses outside of your loan payments.
How do I know if my escrow balance is sufficient?
You can review your annual escrow analysis statement provided by your lender to see if your balance is enough to cover upcoming expenses. If there’s a shortage, your lender will notify you.
Can my escrow balance decrease over time?
Yes, your escrow balance can decrease over time as expenses like property taxes and insurance premiums are paid out of the account.
What happens if I overpay into my escrow account?
If you overpay into your escrow account, the excess funds may be applied to future expenses or refunded to you depending on your lender’s policies.
Can I use my escrow balance to make extra principal payments on my loan?
No, your escrow balance is specifically designated for covering property taxes and homeowners insurance. It cannot be used to make extra principal payments on your loan.
Can my escrow balance be used to cover other expenses?
No, your escrow balance can only be used to cover specific expenses like property taxes and homeowners insurance as outlined in your mortgage agreement.
Understanding your escrow balance is essential for managing your finances as a homeowner. By keeping track of this account and staying informed about its purpose and fluctuations, you can ensure that your expenses are covered and avoid any surprises down the line. If you have any questions or concerns about your escrow balance, don’t hesitate to reach out to your lender for clarification.