What Happens to Leftover Escrow When a Home Loan Is Paid Off?

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Escrow accounts enable homeowners to systematically pay property-related expenses. Your loan servicer collects and distributes funds that are needed to pay certain property-related expenses. Your loan servicer should send the balance of your escrow account to you after your home loan has been paid in full.

Principal Mortgage Payment

  • Homeowners typically make mortgage payments each month to fulfill their loan obligations. The principal and interest portion of your monthly mortgage payment is applied to your principal loan balance. Your loan servicer separates the escrow portion of your payment to avoid erroneous contributions towards your principal balance. Fixed-rate loans enable homeowners to make level monthly payments during the loan term; borrowers who have adjustable-rate loans are subject to payment changes.

Escrow

  • Escrow accounts are set up to collect incremental portions toward property-related costs, such as homeowner's insurance and real estate taxes. Your loan servicer typically collects a monthly amount that equals one-twelfth of an annual property-related bill. For example, if your real estate taxes are $1,200 per year, your lender collects $100 each month toward fulfilling the debt. Escrow amounts that your lender collects are paid semiannually or annually, as items become due. Homeowners make escrow payments with monthly principle and interest mortgage payments.

Loan Satisfaction

  • Home loans are typically satisfied after a borrower makes the final payment for his mortgage term or after a refinance transaction pays off the debt. Your loan servicer can inform you of the amount necessary to satisfy an outstanding loan balance and any applicable late fees or prepayment penalties. At your request, your loan servicer will provide a written payoff statement that contains the exact amount needed to satisfy your loan obligation.

Disbursement

  • The servicer makes a disbursement to refund collected escrow amounts that are left over in your account after your home loan is paid off. Typically, the mortgage servicer issues a check made payable to the borrower of record. The disbursement check is usually sent to the most current address on record. A refund from your escrow balance should be sent within 30 days of paying off your home loan.

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