The house selling and buying process is home to a lot of sensitive elements. Documents, money, and time are all affected by how well the process is organized to get the sale done.
Luckily, escrow accounts are here for you to complete transactions with a peace of mind for all parties. But escrows have a lot more applications than just the closing process.
In this article, we’re taking a look at mortgage escrow and its place in the housing process.
Here’s what you need to know!
Defining Escrow
The broad role of escrow in real estate is to protect the interests of all parties and makes things easier. More specifically, escrow is any set of documents and funds that are kept in the possession of a neutral party in any transaction process.
If money and sensitive documents are involved, then the best option to keep those items safe throughout the process is through an escrow account.
As with many things in real estate, there is more than one application for escrows.
Moving past the closing process usually transitions the buyer in a situation from an escrow account for closing to an escrow account for mortgages.
What Is Mortgage Escrow?
Mortgage escrow is essentially a normal escrow, applied to the context of dealers who are borrowing from lenders. As the escrow account for a mortgage is opened, the lender will put money into it that will go towards monthly payments of the mortgage.
That money covers insurance premiums and taxes in most cases. The leftover portion of the money is left for the borrower to pay the rest on a monthly basis.
This situation helps by encouraging buyers to pay on time with the portion of the mortgage payment that they got.
Comparisons in Mortgage to Other Escrows
With a different focus on the mortgage, escrows of this type and others related to closing have some key similarities and differences.
Parties Involved
In closing escrows, the typical second party across from the buyer is the home seller (which can come in various forms).
Mortgage escrows involve more banks and lending institutions that assist in your monthly mortgage payment.
Payment Format
In closing escrows, there are a few different transactions that revolve around one-time payments.
Inspection services and relevant fees that need to be exchanged usually are a one-time fee sent through an escrow account.
For mortgage escrows, the main difference is the monthly fee for the mortgage payment is sent to the escrow.
Apart from that, it is important to note that both escrow accounts have common ground with earnest payments and escrow agent fees in the mix.
Capital Safety Net
Most escrow accounts for mortgages will require a set amount of money to remain in the account. This is a safety measure in case there are unforeseen costs and fast payment rises in the mortgage.
For closing escrow, no safety net in this form is usually required.
Can I Get Out Of A Mortgage Escrow?
When tackling what mortgage escrow is, it is important to note it is possible to get out of them.
A lot of lenders make mortgage escrow accounts a stipulation in their agreements and conditions to allow a borrower to cancel them.
To get out of a mortgage escrow, borrowers will typically
- Need good standing in terms of making payments
- Need to have a home equity value that is above a set number
- Fill out an official cancellation form (which could include signatures from several parties).
Can Mortgage Payment Rates Change?
Yes! Lenders assess deals between buyers and make adjustments to mortgages each year. There are several things that can change your monthly payment to your mortgage escrow account. Some of these include:
- Property Tax changes in your residential area
- Shifts in homeowner insurance premiums
- Errors made and recognized from previous mortgage assessments
Make sure you’re as aware as possible of any shifts in these areas to stay ahead of any unfortunate changes to your payments.
Choosing the Right Escrow Account for Mortgage
If you want to learn more about picking the right escrow to guide your mortgage process, check out our complete guide on escrow. If you need to speak to escrow agents, get in touch with our team who can help you navigate escrow in real estate transactions.
