When you purchase a home, you can choose to have your property taxes included in your monthly mortgage payment. This arrangement is known as having property taxes in escrow. But what exactly does this mean and how does it affect you as a homeowner? Let’s explore this topic further.
What does it mean if property taxes are in escrow?
Having property taxes in escrow means that your mortgage lender collects a portion of your property taxes each month along with your mortgage payment. The lender then holds these funds in an escrow account and pays your property taxes on your behalf when they are due.
Here are some frequently asked questions related to property taxes in escrow:
1. Can I choose to have property taxes in escrow?
Yes, when you take out a mortgage loan, you can often choose to have your property taxes included in your monthly payment.
2. Why do lenders require property taxes to be in escrow?
Lenders require property taxes to be in escrow to ensure that these important expenses are paid on time. This protects the lender’s investment in your home.
3. How is the amount for property taxes in escrow determined?
The amount for property taxes in escrow is based on an estimate of your annual property tax bill. This amount is divided into monthly payments that are added to your mortgage payment.
4. Can I opt out of having property taxes in escrow?
In some cases, you may be able to opt out of having property taxes in escrow if you have a certain amount of equity in your home. However, this varies by lender and loan type.
5. Are there any benefits to having property taxes in escrow?
Having property taxes in escrow can help you budget for this expense by spreading it out over the year. It also ensures that your taxes are paid on time.
6. What happens if there is a shortage in my escrow account?
If there is a shortage in your escrow account, you may be required to make up the difference with a lump sum payment or have your monthly payments adjusted to cover the shortfall.
7. Can my property tax bill increase if it is in escrow?
Yes, your property tax bill can increase over time, which may cause your monthly mortgage payment to increase if you have property taxes in escrow.
8. Who is responsible for monitoring the escrow account?
Your mortgage lender is responsible for monitoring the escrow account and ensuring that all property taxes and insurance premiums are paid on time.
9. Can I change my mind about having property taxes in escrow?
If you initially chose to have property taxes in escrow, you may be able to request to have them removed from escrow after a certain period of time. Check with your lender for their specific policies.
10. Are there any fees associated with having property taxes in escrow?
There may be some fees associated with having property taxes in escrow, such as an escrow setup fee or a fee for changing the status of your escrow account.
11. What happens to the funds in my escrow account if I refinance or sell my home?
If you refinance or sell your home, any funds remaining in your escrow account will be refunded to you after all outstanding expenses have been paid.
12. How can I ensure that my property taxes are being paid from my escrow account?
You can monitor your escrow account by reviewing your annual escrow statement from your lender. This statement will show how much was paid for property taxes and insurance from your escrow account.