My Annual Surprise From Mr. Mortgage
This makes year 3 and I can get used to this. Same as last year, and the year before, I received a refund check from my mortgage company for a projected overpayment in my escrow account. Based on my estimated taxes and insurance for the upcoming year, my mortgage company has estimated that I will pay them too much. So they give it back!
- The 1st year (‘06), it was $500+
- The 2nd year (‘07), it was $300+
- This year, it is $500+ again
Woo wee!
But wait…
I can’t afford to make THIS mistake again, so I poked around a bit until I saw that my monthly mortgage payment will decrease by $16. Not much, but I’ll take it!
Ok, celebrate now.
Woo wee!!
As usual, this refund will be used to pay for my annual HOA fees. Great fun. [sarcasm]
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Nice! “Free” money is always great ;) This is the first year i’ve lived 100% in our house, so i’m hoping to see something similar…fingers crossed!
An escrow refund isn’t “free” money. You’ve already paid it. They’re just giving it back to you. [-SM]
As an Australian, this concept is quite foreign to me, our banks would never do this, they would just reduce your principle.
I’d really like to know more about how your system works there, and why you wouldn’t have nay overpayment taken off the remaining balance?
They don’t apply the overpayment to principal because it isn’t part of your mortgage loan. Escrow is an account that holds advance payments (separate from your mortgage payment) to cover things like hazard insurance and property taxes. Based on your advanced payments for 12 months, if the estimated balance is higher than the projected insurance and taxes due, the excess is considered an “overpayment” and they send you a refund.
Some people don’t have an escrow account at all. They simply pay their insurance and taxes themselves. Some people make a monthly payment to the mortgage company (separate from your mortgage payment) via an “escrow” account and have the mortgage company pay their insurance and taxes for them. If your mortgage company sends you a refund from your escrow account, there is no rule that says you can’t send it right back and have them apply it to your principal.
To protect their interest (tax liens for non-payment, non-recoverable damage for non-payment, etc), some lenders require escrow accounts, some don’t. The main benefit of an escrow account (to the borrower) is to make one payment to one entity that will cover your PITI. [-SM]
I purchased my house in September 2006. Imagine my joy and shock when in June 2007, I got an overpayment check for $3900!!!!!!!!! I was SHOCKED!!!!!!!!!!!!!!!! Of course, my payment was reduced. Then, in August 2007, I got another check for $800 with a further reduction!!! So, I definitely know about those annual surprises!!! *Wondering if/when this year’s is coming!!!*
What mortgage co. do you have?? Shouldn’t it automatically adjust payments and not give credits? Also, wouldn’t that mean you’re getting a bigger tax break because you’re paying more than necessary? I’m a tad confuzzled.
The mortgage company makes an educated guess with regard to escrow amounts. With decreasing home values they can’t always nail down the exact amount for taxes and insurance. These are things that are not in their control.
Getting money back is always nicer than the opposite when taxes and insurance are increased.
Good for you. This post was right on time because we just received our refund check from overpayments today. Although it was only $235, it will be put to good use.