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WTF is going on with escrows?
Many want the convenience of including their property tax payment and their homeowners insurance premium with their mortgage. Lenders like it because they know it will get paid on time — protecting their mortgage against any liens jumping to the head of the line (tax liens) and the collateral — your home — against any damage.
If escrowing, when you pay your monthly mortgage payment, 1/12th of the property taxes and 1/12th of the homeowners insurance are added to it to deposit into an account specifically to pay those bills. Each month your statement will show you how much is in the account and any payments toward taxes and insurance.
What’s the deal with all that extra money paid at the closing?
When you establish an escrow account — whether refinancing or buying a new home — enough money needs to be in the account to pay the taxes or insurance when it’s due. So you may need to deposit extra into the account.
How is this calculated?
The calculation of the money collected in advance is based on the due dates of the taxes and insurance and how many payments will be collected before they are due.
Using property taxes as an example, let’s say taxes are due yearly on December 1st of each year.
