If you own a home, you know a thing or two about Homeowners Insurance. Homeowners Insurance helps protect your home in the event of a fire, theft, or other kinds of damage that can come from unexpected events.
Typically, the premiums for Homeowners Insurance are rolled into your mortgage payment. Your mortgage company will hold money in a third-party account to pay your property taxes, homeowner’s association fees (if applicable), principal and interest payments, and Homeowners Insurance premiums. This account is known as a Homeowners Insurance Escrow account. Escrow accounts are used by mortgage lenders, attorneys, landlords, and other service industries.
Why Does a Mortgage Company Hold Money in Escrow?
Most homeowners want a manageable monthly payment for their mortgage. It is easier to pay several mortgage-related items in one easy amount.
Therefore, instead of making multiple separate payments to several entities to maintain your home, a mortgage company offers to roll all payments into one monthly payment. As a result, the mortgage company creates an escrow account to pay your related fees as needed.
In addition, the mortgage company keeps track of when payments are due, so you don’t have to. The mortgage company makes these payments as needed to ensure you are always up-to-date on your home-related payments.
How Do You Set Up an Escrow Account?
When you sign your mortgage document, you agree to your mortgage company’s terms and conditions. These terms and conditions include the creation of an escrow account. The process is very easy. The escrow account is set up once your mortgage account is set up.
Sometimes you need to set up your escrow account. If you have to, you will need to do the following:
- Choose a bank or financial institution.
- Make a monthly deposit into that bank with the payment needed based on the premiums.
- Contact your Homeowners Insurance company to set up their automatic draft.
What Are the Benefits of a Homeowners Insurance Escrow Account?
Homeowners Insurance Escrow accounts offer many benefits. However, they have some cons, as well.
- Payments are made in one easy monthly payment.
- The mortgage company pays all necessary related bills.
- No large annual payment is needed.
- The mortgage company tracks all related due dates and payments.
- Receive an annual reimbursement when you pay too much into your escrow account
- The chance of your mortgage payment changing if your premium or taxes increase
- The chance of your estimate being inaccurate, which would leave your escrow account short
Can You Change Your Homeowners Insurance Company if You Have an Escrow Account?
The short answer is yes. Changing your insurance company is an option whether you maintain an escrow account or pay the premiums on your own. Speak with your insurance broker and your mortgage company to ensure a smooth transition.
A Homeowners Insurance Escrow account is an easy way to ensure your insurance and other home-related fees are paid when your mortgage payment is made. Speak to your insurance agent and mortgage company to get the process started.
To learn more about Homeowners Insurance Escrow accounts, contact Burstad Insurance at (715) 235-6479. Our licensed professionals will be happy to answer any questions you have.