Escrow adjustment question

[Chuck K]

I got a letter from my lender saying there's a escrow balance shortfall after they've conducted an account review. I can pay it upfront or pay it in 12 monthly installments by allowing them to take the additional amount automatically every month by adding it to my monthly mortgage payment. It sounds reasonable (no fees, penalties, etc..), but I'm always suspicious when a big bank is trying to appear like they're helping out?

[Steve Babiak]

Is this your first mortgage, and the end of the first year of that mortgage? Sounds like that is the case to me.

Anyway, that is typically done once per year during the life of the mortgage. The lender will have estimated tax and insurance bill amounts, and part of your monthly payment went into escrow to cover those estimated bills. When the ACTUAL bills are bigger, or when they ACTUALLY come earlier than expected, then you will get these shortfalls. The "low water" point is usually 2 months worth of bills sitting in escrow, so when you get below that then the shortfall hits.

And you will be given the option exactly as you posted. I've always used the interest free loan and paid over the next 12 months - especially since the bank is getting that escrow money interest free in the first place.

Lastly, over enough years, there may be overages as well, in which case the bank will mail you a check!