Mortgage escrow accounts guarantee that homeowners' property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items are paid in a timely fashion.
The escrow ensures that there is enough money to pay these bills when they are due. This prevents the homeowner from facing lapsed insurance coverage or delinquent taxes, protecting both the borrower and the lender. Borrowers should receive a full breakdown and explanation from their lenders, before signing any documents.
"Escrow" means - To put in the care of a third party until certain conditions are fulfilled.
The main advantage of having an escrow account is that they automatically budget the borrower's tax and insurance responsibilities over the course of a year. This way homeowners do not have to worry about coming up with several large payments throughout the year; rather, they make a broken down payments monthly with their loan.
The law specifies the limits on the amount that the lender may collect for escrow. The lender may require a monthly payment of 1/12 of the total estimated taxes, insurance premiums, and other charges reasonably anticipated. If the lender predicts there to be a lack of money in the escrow account, the law permits the lender to require additional monthly deposits to avoid or eliminate the deficiency.
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