Current Events > Help this homeowner noob understand basic shit about his mortgage

(+) Yeah! (+)

I have autopay set up. I've been paying my monthly mortgage no prob. But at the beginning of the year I get a bill from my home insurance company telling me what I owe and then I go to my mortgage account and they already paid my insurance for the year through escrow.

Where the heck did that money come from?

When you get a mortgage and homeowners insurance, you have the option of paying them separately, or together.

You chose to pay them together.

So the mortgage bank holds the insurance money for you, and then when you're insurance payment is due (because it isn't due monthly, like your mortgage), the mortgage company just wires them the money.

So, lets say your mortgage payment is $1700 a month. $1500 of it is to actually pay down your mortgage, and $200 is to pay your insurance.

sweet, so a bit of my monthly just sits around until it's time to pay insurance?

Lit dawg, I'm learning so much today.

It's not uncommon for the mortgage company to pay the insurance bill out of your escrow. I imagine most of them do it to make sure the property is insured

lilORANG posted...

sweet, so a bit of my monthly just sits around until it's time to pay insurance?

It's pretty cool. You can also have it set up to apply to your property taxes. It's nice not having to worry about a large yearly insurance bill or a tax bill every six months. My mortgage already sets it aside for me.

If you have property taxes that are owed each month, the escrow can also take care of those. It might be a good idea to call your mortgage company and find out everything it is covering.

MisterPengy posted...

It's pretty cool. You can also have it set up to apply to your property taxes. It's nice not having to worry about a large yearly insurance bill or a tax bill every six months. My mortgage already sets it aside for me.

I'm pretty sure that's what I did because they covered property taxes too. I just didn't know where the escrow money was coming from lol. Didn't realize they weren't applying my entire payment to the mortgage and were just holding on to some of it.

Im sure my lender explained all this too me when we closed on the house but I was hardly paying attention.

Most mortgages default to handling taxes/insurance via escrow for you. They want to make sure it gets paid so the collateral is safe.

g980 posted...

Most mortgages default to handling taxes/insurance via escrow for you. They want to make sure it gets paid so the collateral is safe.

Basically this.

Plus, they get to reap the benefits of everyone's escrow money gaining interest for them, and not the buyer.

I'm activating my insurance today for the lenders to finish my loan.

I'm also a new home owner. If it makes you feel any better, I was also confused about this. I got a "bill" for my end of year taxes and figured it out from there.

If you are able to download a mortgage statement, it should give you a breakdown of what is actually paying off the loan (principal), interest, and what is going into escrow each month.

The mortgage company usually will do an annual assessment to confirm they are taking enough for covering the escrow. If there is an overage or shortage, then they might adjust your monthly payment. This is why even if you have a fixed rate mortgage, the payment amount might change over time.

The easiest way to think of the escrow is that it is your money, at the end of the day. The mortgage company is just managing the account.