Incorrect Mortgage Charge
We just got the first bill for our mortgage, due Thursday, Oct. 1. Part of the charge is $200 some odd dollars for escrow for homeowners insurance. Problem is, we already paid homeowners insurance in full for a year ourselves. The lender isn’t calling me back (yet). I imagine if we don’t pay the bill…
We just got the first bill for our mortgage, due Thursday, Oct. 1. Part of the charge is $200 some odd dollars for escrow for homeowners insurance. Problem is, we already paid homeowners insurance in full for a year ourselves. The lender isn’t calling me back (yet). I imagine if we don’t pay the bill in full, they’ll send it to a credit reporting agency. But the amount is wrong. What to do?
Ah! JRE, thank you SO much for explaining this. Much appreciated. Off to mail in my mortgage….
JRE is right on.
One thing to add: if the amount is wrong (the amount times 12 is either way high or way low for your insurance), the lender will do an escrow analysis if you request it. You might have to wait a year on a brand-new loan before they will do it, but if they’re over-collecting, they will refund the overage plus interest. If they are under-collecting, you will have to make up the balance when the insurance is due next year and they’ll up your monthly escrow based on the 2010 premium.
Also note that the escrow amount should be for the property and liability parts of your premium only. If you have any extras covered under the policy – second residence, riders for jewelry or fine arts – your insurance company will bill you for those. So subtract those premiums when you’re doing a rough estimate on how much the bank should ask you to pay each month.
jre is correct.
The way it works.
Prior to your closing you pay for a full year insurance coverage.
You bring your paid bill to the closing and show it to the lender to prove that you are paid up for a full year.
Now lets assume that your yearly insurance premium is $2400.00.
Beginning with the first mortgage payment, the lender tacks on 1/12 of the $2400 ($200.00) to each mortgage invoice.
The lender deposits the monthly $200 into an escrow account and it accrues interest.
At the end of the 12 month cycle, there is enough money in your escrow account for the lender to pay next years premium.
The next year when you receive your insurance bill, you simply send it to the lender and they pay your insurance our of your escrow account.
It is really like a forced savings account to insure that the funds will be there to pay for next years policy when the time comes to renew.
I suggest you review the escrow agreement you signed at the closing. I am sure that it provides for you to pay this payment into your escrow account.
The lender is not pocketing this money they are just making sure that the money is there when your policy comes up for renewal.
Good luck in your new home.
Duh! you didnt that’s why it incorrect. I’d call the bank and dispute the charge.
But just in case you did, the bank is just piling up cash for the escrow account.
did you agree to escrow the Ins at the closing?