What Does an Excess of Surplus Funds Mean in Escrow Accounts?
Using an escrow account in conjunction with your mortgage can make budgeting easier for you as a homeowner. Escrow companies typically send you a statement at least once a year, telling you how much is in the account. If you see a surplus in the account, it could mean one of several things.
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What is Escrow?
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When you pay your mortgage payment, part of the amount you send in could be going towards an escrow account. The escrow account collects money throughout the year and then uses a portion of that money to make payments on your behalf. Typically, part of the money in the account is used to pay for your homeowners insurance premiums. Another portion of the money in the escrow account is used to pay for your property taxes.
Decrease Premiums
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You may have excess money in your escrow account if your homeowners insurance premiums decrease. While this does not happen often, it can happen when your insurance company experiences fewer claims than it predicted. When homeowners claims decrease, homeowners insurance companies decrease their premiums as a result. When this happens, the escrow account pays a less and this creates a surplus in your escrow account. Premiums often fluctuate slightly from one year to the next.
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Decreased Property Taxes
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Another reason that your escrow account could show an excess of money is because your property taxes decreased. Escrow companies typically base your escrow amount on what you paid last year. If the value of your home decreased and the assessment also decreased, this means that your property taxes could go down. When this happens, the extra money sits in your escrow account after the property tax payment is made.
Considerations
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When you find yourself with a surplus of money in your escrow account, you could potentially request a check from the escrow account for the surplus. Another option is to leave the money in the escrow account and simply pay less into escrow over the coming year. The escrow company will make projections about how much you need to have in your escrow account and base your payment on these projections.
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