When you close on a mortgage, Town & Country Federal Credit Union may set up an escrow account where part of your monthly loan payment is deposited to cover some of the costs associated with home ownership. The costs may include but are not limited to real estate taxes, insurance premiums and private mortgage insurance. This practice ensures that payments are made on time to third parties such as local and county tax authorities and insurance companies.
How Does An Escrow Account Work?
To set up your mortgage escrow account, Town & Country will calculate your annual tax and insurance payments, divide the amount by 12 and add the amount to your monthly mortgage statement. Each month, the credit union deposits the escrow portion of your mortgage payment into the account and pays your insurance premiums and real estate tases when they are due. The credit union may require an “escrow cushion”, as allowed by Maine law, to cover unanticiated costs such as a tax increase. If the estimated amounts are higher than actually needed, the overage balances will be refunded or credited to you.
Who Manges the Escrow Account?
If you have a Town & Country mortgage, your escrow account is managed by the credit union. It is our responsibility to pay your property tax and insurance bills on time. The credit union is liable for any penalties should there be a missed or late payment.
Can Escrow be Avoided?
You can pay the taxes and insurance on your own, making you responsible for saving the funds and making payments on time. We generally use the loan-to-value (LTV) ratio to determine if your mortgage loan will require an escrow account, and borrowwers whose mortgage amount represents 80% or less of the home’s value typically may avoid escrow, if they so choose. However, if you have less than 20% equity as a buyer, you are required to have an escrow account. Loans guaranteed by the Federal Housing Administration (FHA) and Veterans Affairs (VA) also require that you have an escrow account for these expenses.
Should You Set Up an Escrow Account with the Credit Union?
The answer to this question depends on whether or not you are disciplined about your finances and able to set aside the funds needed for property taxes and insurance payments. If not, then you are probably better off having the credit union handle these payments, especially since failure to pay can result in penalty charges, a lapse in insurance coverage or even a lien on your home. If you are disciplined at saving, you may prefer to control the process since tax payments usually are due only once or twice a year.
If you have questions about escrow accounts and home financing in general, reach out and contact Town & Country’s Mortgage Team here.
Prepared by Shannon Segars, Mortgage Loan Officer (NMLS ID: 1414185) for Town & Country FCU.