Refinancing your mortgage can be a great way to take advantage of a lower monthly payment. When you refinance, you get a new loan to pay off an existing mortgage debt. Depending on the type of refinance loan, the new lender may ask you to open an escrow account. This account requires that you send payments for certain expenses each time you send mortgage payments to the lender.
When refinancing a mortgage, the security funds raised at closing are known as “seized reserves” and their amount is determined by the lender. During a refinancing transaction, your new mortgage lender could use the permitted portions of your home equity to finance the balance of your security deposit, thus eliminating the need for you to pay out-of-pocket expenses at the settlement desk. The lender for your new refinance raised enough money from you at the time of closing to deposit it into a new escrow account. The security deposit service refers to a third-party service that provides a simpler method for managing property tax and home insurance payments.
The second way an escrow account is used is as a safe place to store funds intended to cover insurance and taxes. The escrow agent charges a deposit from the buyer that is equal to a small percentage of the sale price. In general, the closer the closing date is to the last tax collection date, the less money you will deposit as escrow, since the most recent installment has already been paid. Since real estate transactions include complicated components, escrow agents are available to help lenders track and disburse money in accordance with concluded agreements. However, if there is a surplus in the escrow account after you finish repaying the loan, you will be entitled to a refund of the security deposit regardless of the amount.
Until the final exchange is complete, both the seller's property and the buyer's deposit are said to be in custody. Funding your escrow account with your refinance loan will cost you more out of pocket and, depending on the time of year you are refinancing, the lender may require a significant amount of escrow taxes to be paid in advance. If your mortgage will be managed by a new loan servicer, there may be some confusion about who to pay and when. The new mortgage usually has more favorable terms for the borrower than those of the current mortgage. That decision could result in a refund of the security deposit. Sometimes, warranty refund checks can add up to several thousand dollars.
If all conditions are met and all payments are made on time, then you may be eligible for an escrow refund. The deadline can be any month of the year, but during this review, loan servicers verify that your escrow payments match the bills paid from this account.