Escrow Accounts

Mortgage escrow accounts are special accounts set up by the lender in which money is held to pay for property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items. Escrow accounts ensure that these items are paid in a timely fashion. They are a guarantee that there is always enough money to pay these bills when they are due so that the homeowner avoids the risk of lapsed insurance coverage or delinquent taxes. The advantages of having escrow accounts for these additional expenses are:

· Guarantee that bills are paid on time - Homeowners do not have to worry about coming up with several large, lump sum payments, each with different due dates, throughout the year.

· Unexpected increases are taken care of - It is the responsibility of the lender to allow for possible increases in tax or insurance premiums.

· Lenders typically cover shortages when tax or insurance payments increase - It is very common for lenders to pay taxes and insurance premiums when they are due even though all the money for these bills has not yet been collected from the homeowner.

· Mortgages have lower rates and down payments because of escrows - Escrows protect the interest of investors of home mortgage loans by making them more attractive and secure as investments.

· Local governments save money - Escrow accounts also benefit local governments by providing a more efficient, less expensive means of tax collection.

· Escrow accounts and RESPA- RESPA does not require that you maintain an escrow account for the purpose of paying property taxes, hazard insurance, etc. Nor does RESPA have any jurisdiction over the decision of the lender or servicer to require or terminate an escrow account. RESPA does, however, provide you with the following protections with regard to the escrow account:

1. If your lender or mortgage servicer requires you to maintain an escrow account for the purpose of paying property taxes, hazard insurance, etc., RESPA requires that the servicer pay such items by the dates due to avoid a penalty or late charge.

2. RESPA sets limits on the maximum amount of money the servicer may require you to maintain and pay in the escrow account.

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