Mortgages: Check Those Escrow Statements
When you get a mortgage for your home purchase, if it’s a fixed-rate mortgage, the only amount that is likely to change over the life of your loan is your escrow payment – the amount set aside for taxes and insurance.
Industry experts warn that homeowners should look carefully at their own escrow statements, as mistakes do sometimes occur, especially if the property is in an area with several taxing authorities and one of them is overlooked.
Other mistakes may be made later on: the lender or mortgage servicer may have missed a tax payment or allowed the balance to grow beyond limits allowed under the Real Estate Settlement Procedures Act. The federal law allows lenders to keep a cushion of up to two months’ total escrow payments.
One way to avoid any problems is to request to pay your homeowners’ insurance and property taxes yourself. Borrowers can request to do so before the mortgage closing or by contacting the customer service department of the lender or servicer of the loan.
Some lenders charge a one-time fee to forgo an escrow, typically around a quarter of a percentage point of the loan balance, or $500 on a $200,000 mortgage.
Many homeowners are filing property-tax grievances to reduce their assessed valuation and tax payments, since many towns and municipalities only reassess properties every five to seven years, and property values have dropped so dramatically in recent years, some homeowners may be paying tax on an old valuation of their property.
One thing to keep in mind however, even if your home’s value has decreased, your taxes may not fall, because some cities and towns are raising millage rates, or the rate at which property taxes are calculated, to preserve local services.
If your lender is handling your escrow and you successfully appeal your tax assessment, your lender may continue with the same escrow payment, at least until the next tax bill arrives, and possible even longer. You could be paying more into the escrow than you need to be paying, so it’s always wise to monitor your escrow statement carefully.