Escrow Thursday: More on Escrow

More on Escrow.

Up until this point I have been telling you about escrow as it relates and is used in a real estate transaction for buying and selling real property. After that transaction closes, you will continue with an escrow account to pay certain bills and your mortgage. The money is collected by the servicer of the loan and it is held in escrow for disbursement later, such as your payment for property taxes and hazard insurance.

The amounts collected for property taxes and hazard insurance are added to your loan payment which includes principal and interest (PI). The amount that is assessed for property taxes is divided by 12 and that amount is added to your PI payment. Likewise the amount your owe for hazard insurance is also divided by 12 and that amount is added to your PI as well. The entire payment is then referred to as PITI. Principal, Interest,Taxes and Insurance.

The mortgage company requires a minimum balance in the escrow account. It is usually no more than double the monthly escrow payment. If the escrow account projected balance is over the minimum amount, the Real Estate Settlement Procedures Act of 1973 (RESPA) requires the mortgage company to refund the difference to the customer.

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