Monday, April 17, 2017
What Happens To My Escrow Account When I Modify My Mortgage?
The first few years you owned your home you were probably surprised to receive an escrow analysis that showed either a shortage or an overage in your escrow account. If your account had an overage, the mortgage company probably sent you a refund check, and you went about your business without much thought to the analysis. But if you had an escrow shortage, your lender would have asked you to pay the shortage amount, and this is a much more serious situation than getting a refund. An escrow account is set up when you take out a mortgage to pay for your homeowner’s insurance and property taxes. A portion of every mortgage payment you make is set aside for these expenses, and when these expenses become due your lender pays them for you. So you have to be sure to keep enough money in that account, or you will be asked to replenish the account all at once or by an increase in your monthly mortgage payment. Anytime your expenses go up, such as an increased house payment, your budget can take a hit. So, if you are going to modify your mortgage, you will want to pay attention to how your escrow account is treated during that process.
In general, a mortgage loan modification is a process that works to change the terms of your mortgage. In most cases the interest rate is lowered, which results in a smaller monthly house payment. When you sign a modification agreement you are entering a new agreement with regard to your mortgage payments, and you will have a closing just like you did when you bought the property. You may recall that at your original closing, a lot of discussion was had about where the funds required to close the mortgage were going; a certain amount was for inspections and appraisals, and then you had to set up an escrow to cover you taxes and insurance. At modification you should do the same, and here are a few reasons why:
• All lenders require you to maintain insurance, so keeping an escrow account current with funds in it to pay for the coverage is essential.
• The tax man does not wait to send out tax bills when your real estate taxes come due, so making sure your escrow account has enough money in it to keep the taxing authorities off your back is a must.
• When you fail to fund an escrow account, you end up paying more later to put the money in escrow. The point of modifying your mortgage is to lower your payment, so it is not a good idea to leave out a provision for the escrow account when you are closing your modified loan.
The lender should come up with the appropriate calculations to make sure your escrow account is covered when you modify your mortgage. If you are not certain this was done, ask for confirmation before signing any new mortgage loan. For help with the entire process, call us today.
If you have more questions about mortgage modifications and how your escrow account is impacted, contact our office. We can be reached by phone, or online at www.law-ri.com.