If you don’t want to find yourself short on money when it’s time to pay property taxes or homeowners insurance, you may want to set up an escrow account.

An escrow account is maintained in combination with your mortgage and is designated to pay for the large, annual bills associated with the mortgage, which are typically property taxes and insurance.

escrow your home loanUnderstanding escrow can be challenging, so we’re here to break it down for you with some common questions we get asked at INB:

What can typically be paid through escrow?
Escrow funds are typically collected to pay real estate taxes, homeowners insurance, and private mortgage insurance. Escrow can also be for other housing-related fees such as homeowners’ association fees or any other required insurance policies, such as flood insurance.

How does escrow work?
We estimate the amount needed for escrow based on information provided from your insurance company, taxing authority, and any other third party to which we are paying escrow funds. We then divide the total estimated payouts (including a two-month cushion to cover any minor adjustments) over 12 months and add it to your monthly mortgage payment.

Is escrow ever mandatory?
Escrow is mandatory for those loans that have a loan-to-value (LTV) greater than 80% or, where required by regulation, for loans where the interest rate is higher than usual. We calculate the loan-to-value by taking the loan balance and dividing by the lesser of the purchase price or appraised value. (The appraised value is used if the subject loan is a refinance.)

What is an escrow analysis?
At INB, we conduct an escrow analysis once each year, which means we’ll review your account to make sure the funds set aside for escrow will cover your projected disbursements. If any of the amounts have changed from the prior year, we will recalculate your escrow payment, and we’ll also make sure that any minimum balances on your escrow account are met.

When the analysis is run, we’ll send you a statement in the mail.

If your disbursements have decreased at any point and you want us to recalculate your escrow payments, just give us a call to review your account.

To learn more about escrow, visit our website, or contact our loan department directly at 217-747-8633 or email loanoperations@inb.com.