Does my mortgage company cover my home insurance and property taxes each year?
One of the questions we get from a lot of our new home buyers in Buffalo is regarding mortgages and whether or not the mortgage payments they make cover home insurance or taxes. The answer is yes, most mortgage payments do include insurance and taxes but there are a few details that new homeowners should know.
What new home buyers need to know about their mortgage, insurance and taxes
In addition to principal (the amount borrowed to buy a home that needs to be paid back) and interest (what the lender charges for lending you the money) your monthly mortgage payment may also include an escrow payment (property taxes and homeowners insurance).
What are escrow payments?
If you have set up an escrow account for your mortgage, each month you’ll make a payment into your escrow account to cover your property taxes and homeowners insurance. Your lender will deposit this amount into your escrow account and will pay for both your home insurance and property taxes on your behalf when they are due.
Regularly scheduled monthly escrow payments are good option for many homeowners because they help eliminate the surprise of large annual or semi-annual payments due for property tax or insurance.
How do homeowners know how much to pay into their escrow account?
Your lender will estimate your yearly home insurance premium and property taxes and that is what you will pay into your escrow account. Remember that this number is just an estimate, so at the end of the year you may get a refund or have to pay extra if your lender underestimated the rates.
Here are three things to note about taxes and insurance premiums on your home:
Taxes and insurance premiums change over time, so your yearly escrow payment should be adjusted to reflect this.
Always check your year-end escrow statement to make sure all bills are paid and there are no mistakes. If you have any questions, contact your lender immediately because at the end-of-the-day these payments are your responsibility.
You may cancel your escrow payments to your lender once you have built up at least 20% equity in your home and if you are current on your payments. If you decide to go this route, remember that you’ll be responsible for paying your taxes and insurance in full and on time.
Being a new homeowner is exciting but there are a lot of details to nail down and there is a lot of information to digest. Luckily, you can always talk to your lender or insurance provider if you have questions.
Are you a new homeowner in buffalo? What questions do you have about home insurance?