What's the Deal with Escrow?

If you're currently paying a mortgage payment, you are likely paying escrow.

Escrow is an account separate from the mortgage account where payments are made to fulfill conditions of your mortgage. These conditions are usually things like property taxes and insurance. Although your escrow is kept in a separate account, it is still generally collected as part of your monthly mortgage payment (or, can be paid as a lump sum). Your escrow payment can fluctuate from year-to-year and it's important to pay attention to the numbers—it can save you money in the long run!

After you close on your home, you'll receive annual (or even more frequent, depending on your mortgage provider) statement that breaks down the escrow that has been analyzed and assessed on your home. The biggest factors that cause your escrow to fluctuate year-to-year are property taxes and homeowners insurance. Other causes might be things like Homeowner Association dues, if those are collected as part of your escrow.

What Causes an Increase in Escrow?

As mentioned previously, the two biggest factors are:

1. Property taxes: Just as the term states, this is a tax that is assessed against a property. In this case, your home. 
2. Homeowners insurance: This is typically required as part of your mortgage agreement, and is insurance that usually covers damage to your home and belongings, as well as incidents that may occur on your property.

Look closely at the details of your escrow statements. If your escrow increased considerably, it's possible there are some simple things you can do to get it reassessed and possibly lowered.

What You Should Look At

Get educated on what happened with your property taxes:

• Did property values go up in your neighborhood?
• Did a levy pass this year?
• Is there a special assessment against your property? 

The first two causes are out of your control, but you can typically address any special assessments that have been placed on your property. Special assessments can include things like improvements to your property (for example, exterior repairs that are needed or lawns that violate city codes), or they can be added for things like unpaid bills, service fees, or fines. It is best to address any assessments that are in your control as soon as possible. 

Another thing you should do on annual basis is to look at your homeowners insurance rates. If your rates have gone up considerably, or you notice that they have crept up year-over-year, it's a good idea to look at your options. Work with your agent and make sure you're getting the best possible price for your coverage needs. Remember, you can change your homeowners insurance provider at any time.

Remember to stay on top of your mortgage and escrow payments. If you experience delinquency, your escrow may not be re-assessed until you're caught up. This means  your escrow could accrue over time and turn into a large lump sum, that could make it nearly impossible for you to stay caught up with your payments. 

If at any time you have questions about your escrow payments, you should reach out directly to your mortgage provider.