When purchasing a house, different fees will be added to your monthly payments, and one of those will include separate funds for your tax payments. If you want to know is escrow tax property tax, you came to the right place – we’ll tell you all about it.
Is escrow tax property tax? The answer is yes. The lender will make an approximate estimation of your home property tax, then divide this number with 12 and add this to your monthly payments. The money for a property tax will go into a separate fund that is called the escrow tax fund.
However, as you may know, these tax payments are not precise and can vary from year to year. So there is a possibility you will have to add money to this fund at the end of the year. On the other hand, some lenders do not require you to open up an escrow account. If you wish to know more about this account and how it works, keep reading and find out.
What Is a Mortgage Escrow Account?
An escrow account is, in essence, savings account managed by your mortgage servicer. This account will receive a cut from your monthly mortgage payments, and it will be used to pay property tax and homeowner’s and mortgage insurance premiums. So basically, with your monthly payments, you will give money for property tax as well.
How Are Real Estate Taxes Calculated?
When you decide to search for a lender for your home purchase, your mortgage service provider will calculate how much money needs to be put aside in an escrow account. Another name for this account is a guarantee. This estimate will be done based on the previous bills and insurance premiums. The yearly amount will be divided into 12 months and added to your rate. Each year this amount will be analyzed again, so if you are paying too little, you will have a “balance shortage,” and if you are paying too much, you will have “overage.”
If there is overage, you will get your money back with a refund, while if there is a shortage, you will have to either pay them back or spread that debt on next year’s monthly payments. So, there is a chance your payments will increase.
You can calculate your property taxes yourself. All you need to find out is your county mill rate. Here is what the formula looks like.
|Mill rate divided by 1000||Home assessed value||The amount you will pay|
How Do You Keep Track of Your Escrow Account?
Since your escrow account is managed by a third party like mortgage companies or banks, and they are the ones that have access to this fund still, some lenders will give you access to this information. So if you want to see your account history or current balance, you can ask for this information from your lender.
Compare Loans Interest Rates and See if You Have to Open Up an Account
When you apply for a mortgage, you will naturally seek a lender that offers the lowest interest rates. And when you think about the means to lower your mortgage payments, you may think that exclusion from this fee will do the trick. Still, most lenders will include the property tax in the mortgage, and some loans will have mandatory accounts. Here are the loans that require a guarantee:
- Federal Housing Administration (FHA) loans – This is a state loan, and you must have an escrow account included.
- Veterans Administration (VA) loans – VA loans require that lenders ensure that the property is covered by hazard insurance and that property taxes are paid. Most lenders will use a security account to cover this.
- High-cost home loans and conventional loans – Most lenders will require a separate account to be opened. Furthermore, most lenders will collect the funds for the first five years with a high-cost loan.
Check this video for more information on how this works.
What Happens With the Balance on My Account Once the Home Is Paid Off
Once you pay off your mortgage, all the balance on your account will be refunded to you, so in essence, with this account, you can save some money. This should automatically be directed to your account within 20 days of your last installment. If this is not the case, you should contact your lender.
What Happens to My Escrow if I Refinance a House?
If you refinance a loan, even if it’s with the same lender, your money can not be transferred or added to your new loan. With a new loan, you will have a new account. But the bright side is that funds from your old account will be wire transferred to your personal account within 45 days after refinance. You can use this money freely to invest somewhere else, but you can not add this money to the new account if you wish to lower your rates.
Now That You Know Is Escrow Tax Property Tax, Is It a Good Thing for You?
Even though it may seem like something that will increase your monthly payments, escrow accounts are an excellent thing. They will ensure the safety of your property and you will not have to worry about leaving money on the side to pay off your property taxes and insurance. As you may know, property taxes are usually paid once a year. This amount of money can be pretty high when paid all at once. With a security account, you will not have to worry about making these payments each year.