About this time every year, your lender is obligated to review your escrow account to keep their monthly bill in line with the actual insurance and tax costs. When they do this evaluation, they send you a summary of their review and either a check, or an opportunity to send them more money. If there is a deficit, they are usually willing to either increase your monthly payment or allow you to send them a lump sum. We are either gleeful for a check for the post-holidays, or grimacing with the new larger house payment. Most of us stop our evaluation here, however, I encourage you to read further.
What is the Mortgage Escrow Account?
Your Mortgage Escrow Account is established by the lender to pay on-going expenses while their loan is on your home. These expenses generally include property taxes, home insurance, and mortgage insurance. When you first established your loan with the lender, most likely at closing, the lender set up a separate account consisting of several months of your estimated taxes, a year’s worth of home insurance, and maybe a month or two of mortgage insurance. Every month after that, you’ve made on-going contributions with your monthly mortgage payment.
Evaluating your property tax bill
If you’re not already disputing your tax bill, the next thing you want to check on your county’s website is your homestead exemption, especially if there was a huge tax jump. Make sure it is in place, and it is indicated on most tax bills as a percentage reduction in the home’s taxable value. Is the air conditioned square footage correct and correlating with your appraisal? If not, you may be overtaxed.
If you are also eligible for the elderly exemption, take the time to do it! You might have to head to the local court house to present your tax returns, but I have seen thousands of dollars unnecessarily spent because it was “too much of a hassle.” My belief it that earning those thousands might be more work than a trip to the local government office!
Evaluating your home insurance
Take the opportunity to crosscheck what your home insurance bill is and what the lender says it is. Get aware of any increase, or change in deductible, and shop it out again if needed. I personally have had significant jumps over time and saved bundles by taking the time to review annually, but it does take time. Something that can’t be earned back easily.
Evaluating Mortgage Insurance
How is the equity on your home? Is it time to call your favorite Real Estate Agent for their realistic value of your home? If you are encouraged, take the next step and call the lender to see what items they need for verifying your value and ridding yourself of that old mortgage insurance payment. Conventional loans only need 20% equity. Old FHA loans can get rid of the insurance as well, though you do need more than 20% equity. Call to find out how much. The changes in the FHA laws over time make it impossible to determine without evaluating your exact loan. New FHA loans have mortgage insurance for the life of the loan. A few phone calls and you will know what the possibilities are!
Examine your Interest Rate
Is your rate competitive with the current interest rates? If not, give me a call. We can fix that!
Proactive Consumers
In summary, be proactive with your bills like you are with your assets. I had one friend who confessed he had been paying for a boat’s radio for 10 years after he sold the boat because the bill was grouped in with other vehicles. Being proactive with debt allows you to not only be aware of where your money goes, but also find the savings that are likely in the escalating bills we all see every year.
Have a fantastic and fiscally sound New Year!!!
Elizabeth Washburn