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Escrow Part 2: How is escrow calculated?

Transcript:

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Wondering how we determine the amount you'll pay into escrow? You've come to the right place! Here's how we do it.

When you close on your mortgage, your escrow account is set up, and we calculate three things for it: property taxes, insurance premiums for your home, and the minimum balance you need to keep in your account.

How do we get those amounts?

First, we estimate the amount you'll owe for your property taxes, homeowners insurance and other expenses you might have, like mortgage insurance and flood insurance, over the next 12 months. We get this number from your loan closing documents, local property tax office and insurance company.

For example, say your yearly property taxes are estimated to be $3,000 and your yearly homeowners insurance, $1,200. That's a total of $4,200 for the coming year. We divide that by 12 and there's the escrow portion of your total monthly mortgage payment: $350.

Then, we add that to the mortgage portion so you have one combined payment where part of it goes toward your mortgage principal and interest and the other part goes into your escrow account to pay your property taxes and insurance premiums for your home. This way you're setting aside money for escrow each time you make your monthly mortgage payment.

Next, we calculate your minimum balance. Did you know that even if you have a fixed rate mortgage, your total payment can change from year to year? This is because property tax amounts and insurance premiums for your home can, and often do, change year after year.

To help you plan for any potential increases, a minimum balance needs to be kept in your account at all times. It can be up to two months of escrow payments.

We'll keep you updated and let you know about any changes to these amounts when we review your escrow account each year.

Now you know how we determine your escrow amount. If you have any questions, we're here for you. Give us a call at 1-800-357-6675. Or, you can check out our other videos to learn more about your mortgage.

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