Lender · Pasadena, CA · Member since 2015 · 16 posts · 2 votes
I just received a letter from my mortgage company for my investment property in Arizona stating that my escrow needs to be increased and I am in a shortage. There is also a new charge for hazard insurance which I was unaware of. My escrow account is now going from $47.91 to $73.68 and also adding an escrow shortage amount each month of $32.19. Am I missing something here? I do not understand how any of this was not adding in in the initial monthly payment setup when I purchased the property last year. Please let me know what you think because I am very confused.
Sarasota, FL · Member since 2014 · 151 posts · 80 votes
10y
The amount that goes into escrow will fluctuate on a yearly basis. Banks review your escrow expenses yearly (usually anniversary date of loan inception) and adjust the amount to cover escrow expenses. Your escrow probably pays property tax and property insurance. Property taxes can increase or decrease, and so will your escrow amount to compensate for the difference. Your property insurance can also increase or decrease thus requiring an adjustment in escrow as well. Banks will cover you by paying shortages (you don't want to miss a tax or insurance payment) and at the yearly escrow audit the bank may increase/decrease your escrow amount and tack on an additional amount to payoff the shortage from previous year. Think of the bank paying your shortage as a free loan. What you are experiencing is nothing unusual and comes with having a mortgage.
Sarasota, FL · Member since 2014 · 151 posts · 80 votes
10y
The amount that goes into escrow will fluctuate on a yearly basis. Banks review your escrow expenses yearly (usually anniversary date of loan inception) and adjust the amount to cover escrow expenses. Your escrow probably pays property tax and property insurance. Property taxes can increase or decrease, and so will your escrow amount to compensate for the difference. Your property insurance can also increase or decrease thus requiring an adjustment in escrow as well. Banks will cover you by paying shortages (you don't want to miss a tax or insurance payment) and at the yearly escrow audit the bank may increase/decrease your escrow amount and tack on an additional amount to payoff the shortage from previous year. Think of the bank paying your shortage as a free loan. What you are experiencing is nothing unusual and comes with having a mortgage.
Investor · Norfolk, NE · Member since 2016 · 23 posts · 7 votes
10y
@Account Closed Your escrow WILL change annually. I would check with your insurance company on such a large increase though. It likely has nothing to do with the bank, but something has increased on your taxes or insurance.
Lender · Pasadena, CA · Member since 2015 · 16 posts · 2 votes
10y
@Paul Santos@Craig PfeiferThank you both for your reply. I am still new to this and that unfortunately means I obsess over each penny fluctuation. Thanks for the wise words!
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
10y
One way to offset this is to check you have a good price on insurance. Escrow will go up when taxes or insurance go up. Probably can't do anything about this year but in the future watch the insurance is correct and competitively priced.
Investor · Oklahoma City, OK · Member since 2016 · 98 posts · 51 votes
10y
When you purchase a property the property taxes change based on the purchase price. That may be part of what you are experiencing. My escrow also increased after the first year with each home purchase.. My mortgage company required me to pay a few months up front in case there was any shortfall so it seems strange that you are now having to "pay back" so much. Did you increase your insurance coverage?