One Big Thing: Time to Explain Escrows to Borrowers

At The Town Group, we know homeownership comes with its share of surprises—especially when costs fluctuate. One common area of confusion is escrow accounts. Why do they change, and what can you do to stay ahead of rising taxes and insurance costs? Let’s break it down.

Why Are Escrows Important?

Did you know that a significant portion of your monthly mortgage payment—often close to one-third—is allocated to property taxes and homeowner’s insurance? According to ICE, this share is at its highest since 2014, largely driven by rising insurance premiums and increasing property taxes.

Escrow accounts exist to help homeowners manage these essential, but often variable, costs. Instead of making large lump-sum payments for taxes or insurance, your mortgage servicer collects funds monthly and pays these bills on your behalf.

Why Do Escrow Accounts Change?

Many borrowers assume their “fixed-rate” mortgage means consistent payments over time. While the principal and interest portion of your payment remains fixed, the taxes and insurance portion is flexible and can rise as these costs increase.

Here’s why adjustments happen:

1. Rising Property Taxes: Property values often increase, which leads to higher assessed taxes. Local governments periodically reassess properties, and rising home values typically result in higher tax bills.
2. Rising Insurance Premiums: Natural disasters, inflation, and increased rebuilding costs have driven insurance rates higher across the board.

These rising costs require servicers to increase your escrow contribution to ensure your account has enough funds to cover the bills.

What Are Supplemental Property Taxes?

If you’ve recently purchased a home, you might receive an unexpected bill for supplemental property taxes. This occurs because property taxes are based on the assessed value of the home at the time of purchase, which may differ from the prior owner’s assessed value.

Local tax authorities assess the difference and bill you directly, often resulting in a higher payment in the first year of ownership. While this is separate from escrow accounts, it’s an important factor to consider when budgeting.

The Disconnect: Borrower Education

A recent LERETA survey revealed that while 80% of borrowers have escrow accounts, only 60% understand how they work—a significant drop from 80% last year. Many homeowners aren’t prepared for escrow adjustments, leading to frustration when monthly payments increase.

Our Commitment to Helping You

At The Town Group, we’re here to demystify the process and empower borrowers to navigate these changes with confidence.

Here’s how we help:

1. Proactive Communication: We explain how escrow accounts work and why adjustments occur.
2. Education on Rising Costs: Understanding trends in taxes and insurance can help you prepare for changes.
3. Personalized Support: Every situation is unique. We provide tailored advice to help manage rising costs effectively.

Let’s Stay Ahead Together

Unexpected changes to your mortgage payment can be stressful, but they don’t have to be. By educating borrowers about escrow accounts and rising costs, we aim to reduce surprises and build trust.

Have questions about your escrow account or concerns about rising costs? Contact The Town Group today. We’re here to help every step of the way.

Think Yes!  Michele, Melissa and Lacey