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  • Writer's pictureLeslie W. Peters

Understanding Your Escrow Account

If you have obtained a home loan to purchase your home, don’t be fooled into thinking that your monthly mortgage payment will be based on the value of the home alone. The likelihood that you will have an escrow account is high, and can raise your monthly mortgage payment significantly. Your escrow account can be tricky to comprehend at first glance, but it is critical to understand this portion of your home loan in its entirety.

What is an Escrow Account?

The purpose of an escrow account is to break down costly expenses which must be paid in order to keep your home. Without an escrow account, you would be responsible for paying expenses such as property taxes and homeowner’s insurance separately from your monthly mortgage payment.

An escrow account attempts to take some of the confusion out of homeownership by wrapping up your mortgage payment, property taxes, and homeowner’s insurance into one easy monthly payment. Rather than you getting involved paying these additional costs, your lender will pay your property taxes and homeowner’s insurance premium on your behalf. In return, your lender will break up the total cost of these necessities into twelve equal monthly payments. This cost is added to your principal and interest amount to form your total monthly mortgage payment. 

The most common expenses included in an escrow account are property taxes and homeowner’s insurance. Depending on the location of your home and how much money you put down as a down payment, you may be subject to over additional expenses in your escrow account. Such expenses include:

  • Flood insurance if your home is located within a flood zone; and

  • Private mortgage insurance (PMI), which is an additional payment made to your lender if you did not put twenty percent or more down as a down-payment.

Can My Escrow Account Change?

Unlike your fixed monthly principal and interest payment (if you have a fixed-rate mortgage, at least), your escrow account is fluid, and can change every year based upon the amount of taxes that are assessed and the cost of your homeowner’s or flood insurance. It’s important to understand that a change in your escrow account will impact the amount that you need to pay every month. This is something to pay careful attention to if you have your monthly mortgage payment auto-drafted from your bank account, as the payment can change from year to year. Failure to pay attention to changes in your escrow account can lead you to make less than the full mortgage payment, which can cause serious issues down the road.

Having Problems with Your Escrow Account? We Can Help

If you have a mortgage on property in South Carolina and are experiencing issues with changes in your escrow account, it’s important to seek help from an experienced real estate attorney as soon as possible. Escrow problems can raise you monthly mortgage payment by hundreds of dollars, making a once-affordable mortgage too much to handle. To speak with a member of Boger & Peters’ real estate team, call (803) 252-2880 today.

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