A mortgage payment is only part of homeownership. Aside from new furniture and home updates, you’re now responsible for property taxes and homeowner’s insurance. Learn how an escrow account can help assure you have the money you need to make these payments.

1. What is escrow?

Escrow means arranging scheduled payments. Home Bank typically collects escrow funds to pay real estate taxes and Homeowner’s insurance and monthly PMI (private mortgage insurance) premiums, if applicable. These funds are added to the total of your monthly mortgage payment, so you don’t have to worry about saving money for these annual fees. Escrow accounts can also be used for other mortgage-related expenses such as flood insurance.

2. How does escrow work?

We use tax and insurance amounts based on previous bills to determine your escrow payment. We add these expenses up and divide by 12. This amount is added to your mortgage payment. If insurance or tax costs increase, we take the shortfall, divide by 12, and add it to the next year’s monthly payment. If you have more than $50 in the account after we make the payments, we’ll send you a refund check. If it is less than $50, we’ll use the funds toward next year’s payment.

3. What is an escrow analysis?

We conduct an escrow analysis every year. A lender will review your account to make sure the funds set aside for escrow will cover your projected payments for the year. If any of the amounts have changed from the prior year, your escrow payment will be recalculated. When we run the analysis, we will mail you a statement. If any of your disbursements decrease at any time throughout the year and you want us to recalculate your escrow payments, please contact us.

4. Why is my escrow amount changing?

If, for example, your taxes or insurance premiums increase or decrease, this change will be reflected in your escrow payment. We outline all changes in your annual escrow analysis. This analysis helps with budgeting and ensures you no surprises when you get your annual bills.

5. What happens if I have a shortfall in my escrow balance?

There may be a shortfall in your escrow account if your taxes, insurance or any other projected amounts were higher than expected. If the money falls short, you may either pay the difference in full or divide your shortfall over 12 months and add it to your monthly mortgage payment for the upcoming year. If the shortfall is not paid in full, it will be automatically added to future mortgage payments.

6. What happens if I have an overage in my escrow account?

If you experience an overage in your account of $50 or greater, we are required by law to send you a refund check. For an overage that is less than $50, we will apply that amount to your escrow balance, thus reducing the next 12 monthly escrow payments.

7. Why does my escrow account have a minimum required balance?

A minimum balance is equal to the lowest balance you are projected to owe for the next 12-month period, plus two months of escrow payments. Having the two-month cushion in your account allows for small, unexpected increases that would ordinarily overdraw your escrow account.

8. What criteria make escrowing mandatory?

Escrow is mandatory for mortgage loans that have a loan-to-value (LTV) greater than 80 percent. LTV is calculated by taking the loan balance and dividing by the lesser of the purchase price or appraised value. (The appraised value is used if the loan is a refinance.) Other unique criteria for mandatory escrowing include higher-priced mortgage loans (HPMLs), properties in flood zones, Fannie Mae guidelines, special assessments, and certain refinance transactions.

9. I am transferring from construction to mortgage loan. What do I need to know?

If upon closing your mortgage loan you feel you have a surplus or your payment goes down significantly, please check the tax payment we are using. We may have paid taxes only on your vacant lot and not the lot with a house on it. Your next tax bill will be based on the new assessed value of property with a house on it. This means your property taxes will increase significantly, and your escrow account will fall short. Talk to us about how to help assure you have the money you need when taxes are due next spring and fall.

10. Where can I find more information about my escrow account?

We’re here to help! To speak to a mortgage representative, please contact the Home Bank Loan Servicing team at 765-558-3881 or via email at loanservicing@homebanksb.com.

Reminder: do not send personal account information via email. If you choose this method of contact, please include a phone number and the best time we can reach you.