escrow Support
Escrow refers to money held in a third-party account to pay for the obligations of another person or party. In other words, your money is held in escrow to pay a bill to someone else on your behalf. As it relates to your loan, part of your monthly payment is held in an escrow account by your servicer to pay your property tax and insurance bills.
Escrow Account
Why do I have an escrow account?
In some cases, an escrow account is a required part of a mortgage loan agreement and is established at closing or soon afterwards.
In other cases, the borrower chooses to open an escrow account in order to make it simpler to meet tax and insurance obligations.
If you have an escrow account with us and are not sure why, here are two possibilities:
- If you had an escrow account and your loan was transferred to us, the escrow account came with it.
- An escrow account may also have been established because you defaulted under the terms of your loan by, for example, failing to maintain property insurance or pay property taxes.
Assuming your loan meets certain requirements, you may not be required to set up an escrow account. In this case you can choose to pay your property insurance and tax bills directly.
However, many people who are not required to have an escrow account do so anyway, preferring to have these escrow cost items in their mortgage payment and paid by their servicer on their behalf.
Why does my monthly escrow payment decrease or increase?
Usually because of changes in your taxes, insurance or both.
Cushion Requirement
A cushion is the minimum amount of reserve funds needed in your escrow account to cover unanticipated distributions or distributions made before you've paid the funds into your escrow account.
The Real Estate Settlement Procedures Act, also known as RESPA, allows us to require a minimum balance (cushion) of 1/6 of your total annual escrow spending, unless a lesser amount is specified by state law.
Here's a simple example
Let's say $500 of your monthly payment goes into your escrow account.
We will hold two months' (1/6 of a year) worth of that to cover any increases in taxes or insurance.
2*$500 = $1,000.
$1,000 is your cushion requirement.