Home equity accounts are generally used to collect and pay property taxes and home insurance payments. Lenders want to ensure that your property is insured and that taxes are paid on time, which reduces the risk for the bank that you won't repay the loan or incur property liens. The amount needed to cover these payments is added to your mortgage payment each month. The existing escrow account cannot be transferred unless your current lender is the same as your new lender, in which case your payment will be reduced by your current escrow balance.
If the lender is concerned that you won't be able to pay the costs, they may set aside the reverse mortgage funds to make sure they are paid. Borrowers who have problems servicing their loan (including questions about the escrow account) should first contact the loan servicer in writing, describing the nature of their complaint. Costs may include, but are not limited to, real estate taxes, insurance premiums, and private mortgage insurance. With a home equity account, your lender or mortgage servicer can collect the amount of your home insurance, mortgage insurance and property taxes, in addition to a mattress, month after month.
This is because “the escrow” is provided by a third party, in this case, your lender or managing entity. When it comes to the latter, some homebuyers are required by their mortgage lender to have an escrow account; others may choose one through their mortgage servicer. An escrow account makes it easy to budget your large property-related bills by paying small amounts with each mortgage payment. Many mortgage lenders allow homeowners to make property tax payments directly to the county adjuster and pay homeowners insurance premiums to their insurer.
The lender or mortgage servicer keeps these funds in an escrow account and makes payments as they come due on behalf of the homeowner. Within 60 business days, the managing entity must resolve the complaint by correcting the account or stating the reasons for its position. Instead of having to pay those current high property costs in a lump sum once or twice a year, you pay a little each month into the escrow account as part of your monthly payment, and then the lender pays them on your behalf when they are due. Once the funds have been registered for the mortgage payment, that lender will return the money you have in custody with your current lender.
Conventional lending guidelines recommend escrow accounts for first-time homebuyers and borrowers with poor credit, but don't require them. An escrow account is an important tool for homeowners who want to ensure that their property taxes and insurance premiums are paid on time and without any hassle. It's also beneficial for lenders who want to reduce their risk of default on loans.