Ask the Lender – “What is escrow and how is it figured?

Many customers choose to escrow, or add to their payment, the cost of other related items to ensure these items are paid in full and on time. The escrow portion of your payment can include the real estate taxes for the property, hazard and flood insurance premiums, private mortgage insurance and life and/or disability insurance.

At the closing of your loan, you will receive an initial escrow disclosure. This disclosure displays an anticipated year of activity which includes the monthly payment, disbursements to pay your taxes and insurance and a running balance on the account. An initial escrow deposit is collected at your loan closing to open your escrow account as shown on the disclosure. The bank is also allowed by law to maintain a two month escrow reserve in case your taxes or insurance should increase. Annually you will receive an analysis of your escrow account. The analysis will list the past year’s payment and disbursement activity as well as the running balance. The analysis will also include the same history but for the following year. The annual analysis will determine if there is a sufficient balance in your account. Your account may have a shortage, thus requiring you to make a special escrow payment or an overage that will be refunded back to you if it exceeds $50. The monthly escrow payment will also be adjusted as a result of the analysis. CNB requires that you escrow for your taxes and insurance if you do not have 20% equity in your property; otherwise it is optional.

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