What Happens if You Have Extra Money in an Escrow Account After Paying Taxes?


When you use a mortgage to buy a house, the mortgage lender may require you to use an escrow account to pay your property taxes and insurance. This makes it easier on you when trying to remember to pay these items. If you have extra money left in the escrow account after your taxes are paid, the escrow company could use the money in one of several ways.

Pay Insurance

After the escrow company uses the money in your account to pay for property taxes, it may then use the rest of the money for your home insurance premiums. Most escrow accounts are set up to pay both taxes and insurance. This means that if you are looking at an escrow statement and you can see that the taxes have been paid, the rest of the money might not be surplus. It could instead be designated to pay the home insurance premiums.

Send You a Check

If the money in the escrow account is not set aside for insurance premiums, it truly could be a surplus. This happens when insurance rates decrease and property tax rates go down. If you have money left over, the escrow company can send you a check for the amount that is left in your account. You are then free to cash the check and use the money as you see fit.

Keep the Money

When you have extra money left over in your account, the escrow company may simply keep the money. Escrow companies sometimes keep the surplus and apply it toward the next year's payments. This is done to provide a little bit of a cushion in the escrow account so that you will be covered in case your insurance premiums or your property tax rates rise. If the amount is relatively small, the company may keep the money for this purpose.

Reducing Your Payment

When you have a surplus in your escrow account, you might have the option of keeping the money in the account and lowering your monthly payment. For example, if you have an extra $120 in the escrow account, the escrow company may give you the option of leaving the money in the account and simply lowering your monthly payment by $10 for the next year. Communicate with your escrow company to see what your options are in this situation.

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