What's an Escrow Account?
Understanding Your Escrow Account
An escrow account may be set up by your lender to collect and hold funds to pay certain property-related expenses. These expenses often include property taxes, homeowners insurance, flood insurance and mortgage insurance. An escrow account is a convenient way to have Navy Federal Credit Union manage the payment of your tax and insurance bills for you.Footnote 1
How It Works
Your monthly mortgage payment may include an amount to be paid into your escrow account for payment of your property taxes and insurance.
Calculating Escrow Payments
- To set up your escrow account, we'll divide your projected annual tax and insurance bills by 12 and add the resulting amount to your monthly mortgage payment.
- Each month, we’ll deposit the escrow portion of your mortgage payment into the escrow account to pay your insurance premiums and taxes when they’re due.
- We also require a cushion of 1-2 months’ escrow payments to cover unanticipated costs, such as tax or insurance increases. This cushion is also known as the allowable low balance in your escrow account.
What to Expect
The amount you pay into your escrow account is calculated at closing and then reviewed annually. These payments can increase or decrease as your taxes or insurance premiums change. As your lender, Navy Federal doesn’t control these costs.
Escrow Analysis
Every year, we conduct an escrow analysis to make sure your escrow balance is adequately funded to cover costs for taxes and insurance for the upcoming year. The analysis includes a projection of the anticipated monthly escrow balance based on payments to be received from you as part of your monthly mortgage payment and payments to be made from your account for taxes and insurance for the 12 months included in your escrow analysis year:
- If the projected low balance is below the required escrow cushion amount (also known as the allowable low balance), it results in a shortage that will be spread equally over 12 months and is added to your monthly mortgage payment. Alternatively, you may have the option to pay the escrow shortage in one lump sum. If the shortage is paid in one lump sum, your monthly payment will be reduced by the amount pertaining to the shortage payment only. Your base escrow payment will stay the same.
- If the projection shows a surplus of funds in your escrow account, the surplus may be refunded to you.
- Regardless of whether there’s a shortage or surplus, if there’s been an increase in your taxes or insurance, your escrow payment may still increase as your base escrow payment is always calculated as 1/12 of your projected annual taxes and insurance premiums.
- Once your analysis is completed, we’ll send you a summary outlining any changes (called an escrow analysis statement) before the changes to your monthly payment amount take effect.
- The timing of your analysis depends on the state in which your property is located. Download the schedule for more information.
FAQs
Still have questions about escrow?
Read answers to frequently asked questions here or contact us with your question today.
Where can I see a breakdown of my escrow account?
Escrow information is available on your monthly mortgage statements. Every year, you’ll receive an escrow analysis statement with a complete breakdown. Additionally, you can view escrow information within HomeSquad by following the instructions below:
- Sign in to online banking
- Click on your mortgage account number to launch HomeSquad
- Navigate to the My Loan dashboard
- View the Taxes & Insurance tile
Do I need to pay escrow if I’m tax exempt?
What is escrow balance?
Can I access my escrow balance?
What do I do with a supplemental tax bill?
Can I cancel my mortgage escrow account and pay the costs directly?
What if I want to change insurance providers?
How does changing my insurance company impact my escrow payments?
What happens when my insurance is renewed?
Do I need flood insurance?
When can I cancel my mortgage insurance?
Disclosures
This information is intended to provide general information and should not be considered tax advice. Please consult a tax professional for more information.
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