Escrow deficit: Pay lump sum or increase monthly payment?

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  • #93774 Reply

      We got our annual escrow notice over the weekend. We purchased our home five years ago, and so far we’ve been refunded money from overpaying into escrow three times and now for the second time need to pay into our escrow account to cover a deficit. The letter also states we can do nothing and the deficit will be added to our monthly payment. Our interest rate is very low (3 or 3.5% I can’t remember which) and paying off our mortgage early is not a financial priority for us at all.

      What would you do or what do you do each year in this situation? Do you send in the lump sum to cover the deficit or just let the monthly payment increase?

      #93775 Reply

        Definitely pay the difference. Just because you can afford an increase right now doesn’t mean you will be able to continue in the future.

        #93776 Reply

          I’ve always let the monthly payment increase. I don’t gain anything by paying a lump sum.

          #93777 Reply

            The escrow account isn’t affecting your interest. It’s just a prorated amount being collected, separate from your mortgage principal and interest. It costs you nothing to pay a monthly amount – unless they charge a separate fee, which I would be very surprised that they would.

            #93778 Reply

              When I first bought my house 6years ago we had a shortage and I figured I could afford the new mortgage so I just let the new increased payments hit. The thing is, you’ll never get your mortgage that low again. In my experience, this is your last opportunity to keep your mortgage payments as low as you can. Like once you say okay to that number, you’ll never see it lower.

              So these last 5 years I’ve been paying the lump sum shortage every year.

              #93779 Reply

                I stopped paying into escrow and put the money in a sinking fund account and pay my own after the bank kept raising my payments. I make interest off of it instead of the bank.

                #93780 Reply

                  Pay the difference. Then there is no interest.

                  #93781 Reply

                    Since you have a pretty low interest rate, could you pay the lump sum this year and then open a HYSA or even a CD that has a higher interest rate than your mortgage and put that extra in there for next year? That way, you are earning interest on the amount when it comes time to pay it again next year, you’ve got the money saved for the potential escrow deficit, but it’s also netted you with some gains in interest? Just a thought…

                    #93782 Reply

                      We manage our own taxes and insurance.

                      Most escrow managed by banks wants to have enough to cover the fees and an additional 10-30% in the event of a deficit.

                      So when they increase the payments it’s also accounting to the additional percentage.

                      When we manage it ourselves, we’re able to invest it or hold it in a high yield account which we benefit from.

                      #93783 Reply

                        We are short every year and make the lump sum payment.

                        #93784 Reply

                          Pay the difference. If it’s property taxes, the bank needs to adjust your payment to reflect the new tax amount. If it’s homeowners’ insurance, look around for better rates and switch companies to keep your escrow amount as close to what it was as possible.

                          Either way, pay what is short and expect the bank to adjust the escrow amount which will make the payment go up some.

                          Have you seen: Best companies to shop for homeowner’s insurance?

                          #93785 Reply

                            Maybe look into why it’s in a deficit too. I found out that the company that absorbed my original insurance company doubled what I owed, hence my deficit. I went and got a different insurance company.

                            #93786 Reply

                              People are confusing what the escrow account covers.

                              For example, I think about $800 of my mortgage payment goes to the actual mortgage. But my payment gets adjusted each year to cover property tax and homeowners insurance. So, my actual payment has been from $1200-$1500.

                              The interest charged on your mortgage is not affected by what you pay into escrow to cover property tax and insurance.

                              Some people pay property taxes and homeowners insurance separately on their own at not be familiar with escrow accounts. Think of it as a savings account you put money into every month to pay the yearly bill.

                              #93787 Reply

                                Escrow or impound accounts pay for home owners insurance and taxes, and often averaged into 12 payments and incorporated into your house payment. The first refund was about closing and fees they may have ccx quote, received, then refunded once all was settled. The increases are an attempt to get an adjustment. But insurance companies have raise their prices over the past 5 years, and taxes can increase after the purchase of a home, specifically if the prior owners had lower property taxes, and then made a profit after the home appraised for more when they sold. It will go up each time property values in your community increase, resulting in higher property taxes. You should have received an itemized list. If you don’t like, pay vf your property tax and insurance separately, directly to insurance company and to your county tax assessor. But be prepared. They don’t take payments, all is due at once, and if your late or don’t pay, your hm insurance will be canceled and a lien can be placed by tax collector.

                                can close

                                #93788 Reply

                                  I no longer do escrow – I like getting my insurance and tax bills. It’s much easier if I need to make insurance changes, and I’m more aware of, and in control of, my finances.

                                  Obviously if you’re not able to save up and have the lump sum available when due, I would not recommend this.

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