What NJ Mortgage Lenders Say About ‘Escrow’ Accounts
Escrow funds are monies collected by your mortgage company, included in your monthly mortgage payment that pays your property taxes and homeowners insurance. The following article will provide a brief synopsis of everything NJ mortgage lenders say about escrow accounts.
Advantages of an Escrow Fund
- Since escrow funds are accumulated monthly, you don’t have to come up with a large sum of money during the year when these bills are due.
- You do not have to pay the ¼ point escrow waiver fee.
- If your property taxes or homeowners insurance increase, NJ mortgage lenders will pay the adjusted bill without requiring you to pay back the additional funds for up to twelve months.
Disadvantages of an Escrow Fund
- At the onset of your mortgage, you must deposit enough money into the fund in order to be able to pay the first bill when it comes due.
- You pay ¼ point escrow waiver fee to avoid having an escrows.
- Mortgage lenders keeps a two-month cushion in your account to cover any rises in property tax bills or homeowners insurance.
- When your property taxes do rise, mortgage lenders will ask that you deposit additional funds to cover the rise in taxes or they will increase your monthly amount you pay.
- If your mortgage lender does not make your payment for you, you are still liable.
What Does the Escrow Account Actually Include?
Generally, when an escrow account is set up between you and NJ mortgage lenders, the account will include your: 1) homeowner’s insurance, 2) property taxes, and 3) private mortgage insurance (if your down payment was less than twenty percent of the sales price).
Utilizing the escrow account, your mortgage lender ensures that there is always money available to pay taxes and insurance premiums on time. Your monthly mortgage payment will therefore include 1/12th (since you pay your mortgage monthly) of the total tax and insurance bills on your home for that year.
NJ mortgage lenders typically cover shortages when payments increase until your bill has been adjusted to the new rates. These shortages occur when your taxes are raised or your homeowner’s insurance increases.
As per the Federal Real Estate Settlement Procedures Act, NJ mortgage lenders are limited to a two month “cushion” of escrow funds.
Is the Two-Month Escrow Cushion Really Necessary?
NJ mortgage lenders need this cushion to cover the rising costs of property taxes and homeowner’s insurance. These items, unfortunately, never go down, they only rise in price. As a result, NJ mortgage lenders need to ensure there is enough money to cover the increases, for your benefit.
How to Avoid Escrow Accounts
When you have at least twenty percent equity in your home, you have the option of having the mortgage lender waive your escrow account. At this point, then, you will be responsible for paying these bills on your own. In general, the NJ mortgage lender will charge you ¼% of the loan amount for you to have this option. This fee is known as the Escrow Waiver Fee.