What Is an Escrow Spread?

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An escrow spread is also referred to as an escrow account shortage. Find out about an escrow spread with help from a managing broker with Windermere Real Estate in this free video clip.

Part of the Video Series: Real Estate Questions
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Video Transcript

Good morning, I'm Jim Jacobsen a Managing Broker for Windermere Real Estate in Seattle, Washington and I been asked the question today regarding escrow account shortage or escrow account spread. Periodically, our insurance goes up and of course our taxes, our real estate taxes on our property normally increase on an annual basis and for a lot of us who have less than 20 percent equity in our homes is mandatory that we have our taxes and insurance included with our principal interest payments to our lender. On occasion you're gonna receive the letter from your lender stating that there's a shortage in this reserve account, that means the taxes have gone up and/or your insurance has gone up and that there will have to be an adjustment made in your PITI or Principal Interest Tax Insurance payment. Now the ways that you might be able to deal with that would be number 1 to make a lump sum payment to get yourself caught up, make sure your reserves are caught up or the lender will allow you to spread that deficiency according to each month's payment that you'll be making in the future. The other alternative would be to go find possibly a lower cost insurance that would get you back into the same payment structure as you were before. That may or may not be able to be happen but in the case of taxes we have no choice the taxes are gonna go up and you will have to increase your payment. So example, if I had a reserve of 250 dollars a month to pay for my taxes and insurance and my taxes went up, lets hope they don't go up by this amount but lets say it went up by 1,200 dollars a year. Well, they're going to adjust your reserve account by a 100 dollars additional to make sure we have the monies in the account to make those payments cause our taxes in our state are taken out twice a year and of course your insurance policy is taken out once a year.


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