For most homebuyers, an escrow account is a key part of purchasing a home, and you may be required to have one.
Here’s what you should know about escrow and its part in the mortgage process.
What is escrow?
An escrow account is a tool that is used to collect and pay future property taxes and insurance premiums for your home. With an escrow account, you don’t have to separately save. Your monthly mortgage payment is broken down by:
- Your mortgage to pay principal and interest.
- Your escrow account to cover property taxes and insurance premiums such as homeowner’s insurance. It is based on your annual insurance premiums and estimated tax divided into 12 payments.
You won’t need to worry about receiving tax or insurance bills to pay. When your bills are due, the Bank will pay them on your behalf. You may receive a copy of the paid bill for your records.
What is an escrow analysis?
Over time, your property taxes and insurance premiums will fluctuate. As a result of this change, your escrow account will be analyzed yearly to ensure you have enough to cover the expenses. A minimum balance of no more than two months of escrow payments must be kept in case there are any unexpected increases.
During an escrow analysis, it is determined how much will be in your account for the next 12 months. At the lowest point, its projection may be:
- Below the minimum balance, there will be a shortage. This happens when your taxes or insurance premiums for the past 12 months were more than expected, or if they are estimated to increase in the next 12 months. Any shortage may be spread over at least a 12-month term or paid in full to prevent an increase in your monthly mortgage payment.
- Above the minimum balance, there will be a surplus. This happens when your taxes or insurance premiums are less than expected, or if they are estimated to decrease in the next 12 months. You may receive a refund check for any surplus.
You’ll receive an escrow analysis statement annually that will provide details about your shortage or overage.
Interested in buying a home?
If you’re ready to buy a home, Adirondack Bank offers a variety of mortgage products with convenient terms and competitive rates. Let our team of professional and dedicated Mortgage Loan Originators help you choose the product that’s right for you.
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