Mortgage Question

[Aimster]

My first monthly payment is due and I noticed it includes my hazard insurance.

I prepaid 1-year of hazard insurance plus I put 3 months extra in escrow.
Shouldn't I not have to pay hazard insurance for another year?

I also prepaid my taxes for the remainder of the year but they are still collecting from me.

 

[spidey07]

They're probably just including it in your escrow payment. You might get it all back at the end of the year.

Why do you have an escrow account if you were going to pay it yourself anyway?

 

[RyanPaulShaffer]

Why did you pre-pay your property insurance and property taxes if you're using ESCROW? It's one or the other...either you pay the taxes and insurance yourself, or you ESCROW it for convenience.

 

[Aimster]

Lender required it. I had no control over it.

 

[Taughnter]

Originally posted by: Aimster
My first monthly payment is due and I noticed it includes my hazard insurance.

I prepaid 1-year of hazard insurance plus I put 3 months extra in escrow.
Shouldn't I not have to pay hazard insurance for another year?

I also prepaid my taxes for the remainder of the year but they are still collecting from me.

My understanding of the way it works is as follows:

You prepay a year's insurance simply because that's how your insurance is billed (in advance). Your escrow is just the bank's way to make sure you set aside the money for next year's bill, hence why many people prefer not to have an escrow. The 3 months extra should just be to cover for missed/late payments or if the amounts are off.

Same with your taxes, they collect them in advance and pay them for you when they come due.

One thing I did fail to mention above: It's likely that the lender calculated it out for you to contribute to the escrow even when you're paid up (i.e. the rest of this year) just to keep your payments the same from month to month. I'm not sure if that's how your loan is set up or not, so I can't be sure.

Of course it could also be an error. If you're confused about your bill simply contact the lender and ask them to explain it.

 

[RyanPaulShaffer]

Originally posted by: Aimster
Lender required it. I had no control over it.

Then you shouldn't have paid them yourself. ESCROW is setup to lump your insurance premiums and property tax in with your mortgage payment.

There is probably some tracking confusion on the part of the property tax folks and the property insurance company. They are only expecting the ESCROW amount (since that is what you signed up for), so maybe they didn't properly apply the prepaid amounts?

 

[mugs]

It sounds like you're paying for next year's hazard insurance now, which is kind of the point of escrow - it spreads the payments out, but you pay in advance.

 

[dullard]

Originally posted by: RyanPaulShaffer
Why did you pre-pay your property insurance and property taxes if you're using ESCROW? It's one or the other...either you pay the taxes and insurance yourself, or you ESCROW it for convenience.

Aimster is doing it the typical way.

Suppose the insurance + tax was $1200/year (low but it makes the math easy). In this case, you have to pay $100 a month AND prepay for a whole year. Suppose the buffer is 3 months of $300.

Month 0: escrow has $300 - you have 1 full year's coverage on the insurance.
Month 1: escrow has $400
Month 2: escrow has $500
Month 3: escrow has $600
Month 4: escrow has $700
Month 5: escrow has $800
Month 6: escrow has $900 - you only have 6 month's insurance coverage left.
Month 7: escrow has $1000
Month 8: escrow has $1100
Month 9: escrow has $1200
Month 10: escrow has $1300
Month 11: escrow has $1400 - you only have 1 month's insurance coverage left.
Month 12: escrow has $1500, pays out $1200 to prepay the next year's insurance and last year's tax, net $300. Right back at the buffer amount.

See you are right back where you start. Escrow sucks for that reason. Not only do you prepay the insurance company for the first year's insurance, but you have to prepay the bank account each month for the second year's insurance. When that second year starts, the escrow account has enough to prepay for that second year. All that money sits in the bank earning 0% interest in most cases.

If Aimster didn't prepay for the first year, the escrow account couldn't afford the $1200 tax+insurance bill in month 0.

 

[OCGuy]

Yes, it is correct. Do not worry.

You are not "paying" your hazard insurance monthly now. They are putting it into an escrow account that will disburse your taxes and insurance when they come due.

 

[imported_inspire]

Originally posted by: dullard

Originally posted by: RyanPaulShaffer
Why did you pre-pay your property insurance and property taxes if you're using ESCROW? It's one or the other...either you pay the taxes and insurance yourself, or you ESCROW it for convenience.

Aimster is doing it the typical way.

Suppose the insurance + tax was $1200/year (low but it makes the math easy). In this case, you have to pay $100 a month AND prepay for a whole year. Suppose the buffer is 3 months of $300.

Month 0: escrow has $300 - you have 1 full year's coverage on the insurance.
Month 1: escrow has $400
Month 2: escrow has $500
Month 3: escrow has $600
Month 4: escrow has $700
Month 5: escrow has $800
Month 6: escrow has $900 - you only have 6 month's insurance coverage left.
Month 7: escrow has $1000
Month 8: escrow has $1100
Month 9: escrow has $1200
Month 10: escrow has $1300
Month 11: escrow has $1400 - you only have 1 month's insurance coverage left.
Month 12: escrow has $1500, pays out $1200 to prepay the next year's insurance and last year's tax, net $300. Right back at the buffer amount.

See you are right back where you start. Escrow sucks for that reason. Not only do you prepay the insurance company for the first year's insurance, but you have to prepay the bank account each month for the second year's insurance. When that second year starts, the escrow account has enough to prepay for that second year. All that money sits in the bank earning 0% interest in most cases.

If Aimster didn't prepay for the first year, the escrow account couldn't afford the $1200 tax+insurance bill in month 0.

This :thumbsup: