Typically, mortgage lenders demand that you include additional funds, known as “impounds” or “escrows,” with your principal and interest payments. ” And sometimes, they owe you an escrow refund.
Escrow refunds are a common event, checks that come after a mortgage is refinanced or paid off. Sometimes escrow refund checks can total several thousand dollars.
We must first understand how escrow accounts are established and funded before examining how to get money out of them.
Refinancing your mortgage can bring numerous benefits, including lower interest rates and monthly payments However, you might also be eligible for an escrow refund after refinancing. This refund represents the excess funds remaining in your escrow account after the refinance is finalized. Understanding the process and timeline for receiving an escrow refund can help you plan your finances and ensure you receive the money you’re owed
What is an Escrow Account?
An escrow account is a special type of account used to hold funds for future expenses related to your property such as property taxes and homeowner’s insurance. When you make your monthly mortgage payment a portion of it is typically allocated to your escrow account. Your loan servicer then uses these funds to pay your property taxes and insurance premiums on your behalf.
Escrow Refunds After Refinancing:
When you refinance your mortgage, you may have a surplus in your escrow account. This can happen for several reasons, including:
- Lower property taxes or insurance premiums: If your property taxes or insurance premiums have decreased since you last refinanced, you may have more money in your escrow account than is needed to cover these expenses.
- Overpayment at closing: If you made a larger down payment or closing costs than necessary, the excess funds may be deposited into your escrow account.
- Change in escrow requirements: The amount of money required to be held in escrow can vary depending on your loan terms and local regulations. If the escrow requirements for your new loan are lower than your previous loan, you may be eligible for a refund.
How Long Does It Take to Get an Escrow Refund After Refinancing?
After refinancing, the length of time it takes to receive an escrow refund varies based on a number of factors, such as:
- Your loan servicer: Different loan servicers may have different policies and procedures for processing escrow refunds.
- The timing of your refinance: If you refinance close to the end of your escrow account’s annual review period, it may take longer to receive your refund.
- The amount of the refund: Smaller refunds may be processed more quickly than larger refunds.
Generally, you can expect to receive your escrow refund within 20 days after your loan servicer conducts its annual escrow account analysis. However, it’s always a good idea to check with your loan servicer for specific information about their refund process and timeline.
Additional Information:
- If you are refinancing with the same lender, your existing escrow account is typically reassigned to the new loan. In this case, you may not receive an escrow refund unless the property taxes or insurance associated with your property have changed dramatically.
- If you are refinancing with a different lender, your original escrow account will be closed, and you should receive a check for the remaining balance within 20 days.
- If you have any questions about your escrow refund, you should contact your loan servicer directly. They can provide you with specific information about your account and the refund process.
Escrow refunds can be a welcome surprise after refinancing your mortgage. By understanding the process and timeline for receiving an escrow refund, you can ensure you receive the money you’re owed and plan your finances accordingly. Remember to check with your loan servicer for specific information about their refund process and timeframe.
Escrow accounts and 20 percent down
The lender will almost always demand the creation of an escrow account if you buy a home with less than 20% down. Escrow means “trust. ” An escrow account is designed to hold your money. It’s administered by the mortgage servicer, the company that also collects your monthly loan payments.
Generally, an escrow account is used to collect money to pay such costs as property taxes and insurances. In some cases, there can also be collections for other costs, such as flood insurance.
Nevertheless, you might still wish to set up an escrow account if you put down 20% or more of the purchase price. The reason is that it’s an easy way to budget for property taxes and property insurance.
How much can lenders hold in escrow?
Lenders are only permitted to retain $50 in escrow in addition to the annual cost of costs like property taxes and insurance, plus a reserve equal to one-sixth of the required amount.
If property taxes are $6,000 and property insurance is $1,800 the maximum escrow amount will look like this:
- Property taxes = $6,000
- Property insurance = $1,800
- Subtotal = $7,800
- 1/6th of $7,800 = $1,300
- $7,800 + $1,300 = $9,100
- $9,100 + $50 = $9,150
In this example, the most that can be kept in the escrow account is $9,150.
You want your escrow account to cover all required tax and insurance costs. The lender has the right to purchase a replacement insurance policy and require you to pay the premium if your current policy is canceled, not renewed, or does not provide adequate coverage.
The cost of a force-placed policy can be several times what you would pay with a traditional insurer. Avoid force-placed insurance and always be certain you have proper coverage.