New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

  Mortgage Basics   Chapter 6: Closing
Emotions, family and personal reasons all come into play in any home-buying decision.
 
   

Understanding escrow accounts

 

At closing, you will be required to deposit real estate taxes and insurance premiums into an escrow account (sometimes called an impound account). An escrow account ensures that the taxes and insurance will be paid, and on time. This protects the lender from tax liens and uninsured losses that the borrower can't repay.

The federal Real Estate Settlement Act limits the amount lenders can require in escrow to a maximum of two months' payments. Escrow assessments and adjustments are generally made annually.

How escrow accounts are managed
The amount in the escrow account varies during the year due to tax assessments and insurance premium adjustments. The lender typically will cover any shortfalls until it can adjust your monthly payment to make up for tax hikes and premium increases. Your monthly mortgage payment will fluctuate from year to year, even on long-term, fixed-rate loans.

Can I avoid escrow?
Yes. Some lenders allow you to pay your own property taxes and home insurance premiums, especially if your loan-to-value ratio is below 80 percent. But don't be surprised if the lender boosts your interest rate to compensate for the additional risk they're assuming.

Once an escrow requirement is in place, it can be difficult to persuade a lender to cancel it. If your loan is sold, as is common, and there is nothing in the lending agreement that provides for cancellation of the escrow requirement, you'll have to live with the decision of your new mortgage servicer.

-- Posted: May 1, 2006
<< Previous article | Next article >>  
 RESOURCES
Mortgage payment calculator
How much home can I afford?
Mortgage glossary
 TOP MORTGAGE STORIES
Winner or loser: Mortgage shopper
Winner or loser: Home equity loans
Winner or loser: Auto loans

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 

Mortgages
Compare today's rates
NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 4.28%
15 yr fixed mtg 3.30%
5/1 ARM 3.35%
Rates may include points
- advertisement -
- advertisement -
 
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.