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Debbie Siegel's Mortgage Minute
Understanding Escrow Accounts
You've heard the term every time you've purchased a home or refinanced, but do
you understand what an escrow account is? To make sure you're getting all the
facts when receiving monthly payment quotes, take a minute to learn the
details.
An escrow account is a fund set up by your lender to handle property tax and
property insurance payments. By establishing this account - typically with
three months of tax and insurance payments up front, and then monthly
additions that are included in your payment - the lender protects itself.
If taxes are not paid, for example, the taxing authority can place a lien on
the property that has a higher priority than the lender's lien. Likewise, if a
flood, fire or other catastrophe befalls the house and insurance isn't paid
up, the lender isn't paid either.
Many property owners find that escrow accounts are a convenient way to ensure
that all property-related taxes and insurance are kept current. They simply
send the bills to the lender when they arrive and the lender pays them.
* Next 37 17 investors only!
Escrow accounts also earn interest for you. Every year you should receive a
1099NT reflecting the interest earned on the money that you pay in every
month. As minimal as it might seem, it is considered taxable income.
Related to escrow accounts, one thing to clarify when receiving monthly
payment quotes from prospective lenders: ask if the quotes you receive are
principle and interest (P&I) or principle, interest, taxes and insurance
(PITI). A payment may seem extraordinarily appealing without the taxes and
insurance, but the fact is, most lenders require these expenses to be included
in your monthly payment.
Got questions about real estate financing? Contact
Debbie@westchester-mortgage.com
or 617-965-1236. She'll consider them for
inclusion in a future column. Debbie Siegel is president of Westchester
Mortgage in Newton, Mass. She is licensed in several Northeastern states.
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