|
LESSON 23: ESCROW (IMPOUND) ACCOUNTS
(continued from previous page)
The amount of money in your escrow account varies
over the course of the year. Right after taxes are paid, for instance,
the balance will be low. Lenders try to maintain a cushion of extra
money in borrower accounts. But the federal Real
Estate Settlement Procedures Act (RESPA) limits the amount of
financial cushion these accounts can have to a maximum of two months
of escrow payments.
 Lenders
always require the mortgagor
to set up an escrow account. False: Escrow agreements are usually
required when the loan-to-value is more than 80 percent at closing.
If there isn't enough money in your account to pay
a bill, your lender will typically cover the shortage. But don't
think you'll get a free ride! Every so often, your lender will perform
an analysis of what bills you're expected to pay in the coming months
and how much money you have to pay them. If there has been a recent
shortfall, your lender will boost your payment for a few months
to recoup what it had to pay on your behalf.
Lenders
sometimes charge fees to set up these escrow accounts. These fees
usually range from $50 to $150. You can ask your lender not to establish
an escrow account and pay your taxes and insurance premiums yourself.
But your lender may boost your interest rate to compensate for the
additional risk it's assuming!
 |
Escrow
accounts are a useful tool for cash budgeting. You spread the
property taxes and insurance expenses over the year. |
 |
You lose
out on interest income by using an escrow account, and not all
states require lenders to pay interest on monies held in escrow. |
|
It's difficult to get a lender to cancel an escrow requirement
once it's in place. If your loan is sold -- and loans are
typically sold two or three times -- and there is nothing
in the lending agreement that provides for the cancellation
of the escrow requirement, you'll have to live with the new
firm's decision.
|
|
