When you receive your mortgage statement, you may come across a term called “Escrow Advance”. What does it mean and how does it affect your mortgage? Let’s dive in and find out.
Understanding Escrow Accounts
An escrow account is a separate account held by your mortgage lender to help manage and pay for certain expenses
related to your home. These expenses typically include property taxes, homeowners insurance, and sometimes
mortgage insurance.
Every month, along with your mortgage payment, you contribute a specific amount to your escrow account. The lender
then uses this money to pay your property taxes and insurance premiums on your behalf.
What is an Escrow Advance?
Escrow advances occur when there is a shortage in your escrow account. This means that there is not enough money
in the account to cover your upcoming property tax or insurance payment. The lender will then use its funds
to pay these expenses on your behalf, creating a negative balance in your escrow account.
The escrow advance amount is the difference between what should have been in your escrow account and the actual
amount you have available. This shortfall is typically added to your mortgage statement as an escrow advance
balance owed to the lender.
Why Do Escrow Advances Occur?
Escrow advances can happen due to various reasons, including:
- Property tax or insurance premium increases
- Inaccurate initial escrow analysis
- Changes in your insurance coverage
- Errors in the calculation of your escrow payment
- Missed or delayed payment by your previous mortgage servicer
How Does It Affect Your Mortgage?
When an escrow advance is added to your mortgage statement, it means you owe the lender that amount in addition to
your regular mortgage payment. The lender may offer you options to repay the escrow advance balance:
- Pay the balance in full: You can pay the entire escrow advance balance at once, which is usually the
recommended option since it eliminates any future interest charges on the balance owed. - Spread the payments: You may have the option to spread the repayment of the escrow advance balance over a
certain period. The lender will add a specific amount to your monthly mortgage payment until the balance is
paid off. - Refinance your mortgage: If you’re struggling to repay the escrow advance balance, you may consider
refinancing your mortgage to consolidate the balance and create a more manageable payment plan.
Preventing Escrow Advances
To prevent escrow advances, it’s essential to regularly review your mortgage statement and escrow account:
- Check for any increases in property taxes or insurance premiums.
- Notify your lender immediately if you receive any statements indicating payment changes.
- Monitor your escrow account to ensure accurate calculations.
- Keep your insurance information up to date.
- Request a review of your escrow account if you suspect any errors.
Summary
Escrow advances occur when there is a shortage in your escrow account, and your lender covers the expenses using
their funds. This creates a negative balance in your escrow account, which is added to your mortgage statement
as an escrow advance balance owed to the lender.
It’s important to understand how escrow advances work and take necessary steps to prevent them by regularly
reviewing your mortgage statement and escrow account.
Frequently Asked Questions Of What Is Escrow Advance On Mortgage Statement: Demystifying Real Estate Jargon
What Is An Escrow Advance On A Mortgage Statement?
An escrow advance on a mortgage statement refers to a payment made by the lender to cover property-related expenses like taxes and insurance.
Why Is There An Escrow Advance On My Mortgage Statement?
The escrow advance on your mortgage statement is there to ensure that funds are available to cover your property taxes and insurance premiums.
How Is The Escrow Advance Calculated?
The escrow advance is calculated based on the estimated amount needed to cover your property taxes and insurance for the coming year.
Can I Avoid An Escrow Advance On My Mortgage Statement?
In most cases, an escrow advance is mandatory, but some lenders may provide an option for borrowers to manage their own property tax and insurance payments.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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