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An escrow account is attached to a mortgage to pay property taxes and insurance. An annual escrow analysis determines if the account is adequately funded, and a surplus is returned to the borrower, while a shortage can be made up in a lump sum or by increasing mortgage payments. Changes in insurance premiums and property taxes can affect the account.
A custodial analysis is a process used to determine the condition of a custodial account. When buying a home, people will often opt for a mortgage with an escrow account attached to it. With this type of account, property taxes and insurance can be paid with the mortgage payment. Escrow analysis is an annual process used to determine if the escrow account is adequately funded.
The amount of the mortgage payment is determined by the amount of money needed in the escrow account. Escrow accounts must have a certain amount of money in them to meet the necessary requirements associated with this type of account. An escrow analysis is used to determine how much money will be needed over the next year and whether the current mortgage payment will be enough to fully fund the account.
After completing a deposit analysis, there will sometimes be a surplus. If there is a surplus, the escrow company will take the extra money out and return it to the borrower. In this case, the borrower will receive a check for the amount of the surplus.
In some cases, escrow analysis will show that the account does not have sufficient funds. When this happens, the shortage will have to be made up in one of two ways. The mortgage company will notify the borrower of the shortage and allow them to decide how to fix the problem.
The borrower may choose to make up the shortage in a lump sum. If this is the option, the borrower will have to write a check to the mortgage company in the amount of the shortage. The other option you have is to increase your mortgage payment throughout the year. For example, if there were a shortage of $120 US dollars (USD) in the escrow account, the mortgage payment would increase by $10 USD per month to make up the difference.
Changes in the needs of an escrow account can occur for a number of reasons. The most common reason for changes is when the homeowner’s insurance premium increases. After a homeowner has had a loss on the home, insurance rates could increase. Property taxes will also fluctuate a bit from year to year.
Smart Asset.
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