escrow always short due to increae in prop/tax & insurances

fcolumbolaw · Joined: 12 Aug 2008 Posts: 1 1.27 Dollars($)

I always try to pay additional $100 a month to escrow so that escrow doesn't fall short, but I got a refund check recently, so again my escrow will fall short and payment will be increased again next year. would it be better to apply the $100 a month to principal instead?

Guest 0.10 Dollars($)

Lenders are required to do a periodic escrow analysis of each loan, and by law any overage must be refunded to the borrower (2 months' cushion is maximum lenders are allowed to keep.) However, if you are anticipating having a significant escrow shortgage when your next tax or insurance payment comes due, you can turn around and send the money right back in to be applied to your escrow account. (These escrow analyses are usually just done once a year.)

Are you anticipating having a $1200 shortage in your escrow account?

I think it is always a good idea to be proactive and keep your eye on your escrow account - especially if you think you will have a significant escrow shortage. You can pay a little ahead of time each month like you are currently doing, or you can wait and send in a lump sum payment to cover the shortgage once the lender informs you of the shortgage, or you can pay back the shortgage after the fact for a 12-month period . The latter option isn't a bad choice if your escrow shortage is relatively small amount.

One thing many borrowers may not know, is that some lenders may allow you to spread out an escrow shortage pay-back period for as long as 36 months if you ask them. I know for borrowers who have had a sudden large increase in their tax assessment, this can be a possible option to ease the cash flow as you pay back a large shortage.

That said, if you don't know for certain that you will have an escrow shortage, I wouldnt send extra money to your escrow account- paying down your principal balance will save you money (interest savings) and increase your equity more quickly!
Most escrow accounts are not interest-bearing accounts or yield nominal interest.

I hope this makes sense. I worked in mortgage servicing dept for a large nationally known back for 2 years and have been a mortgage originator for past 7 years.

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