Could someone please help me with a loan question.?

Each month I pay an extra $100 dollars above my monthly payment amount. I have my taxes and insurance included in this monthly payment so the escrow amount changes whenever school levies pass or insurance rates go up. The bank says that I have a negative escrow amount of $600 this year and are going to increase my bill over the next 12 months to cover the cost. Should I pay the extra escrow in one lump sum or pay it over the next year? And also, why since I pay over my monthly payment do I have a negative escrow any way?

Could someone please help me with a loan question.?child tax credit

Let me answer your last question first. When you make pre-payments (amounts over the monthly payment) on your loan, that money is applied to the principal balance on the loan. So none of the extra money is put in your escrow account for taxes and insurance. This is a great thing because it saves you interest in the long run. You will actually pay the loan off early.

As for the escrow account, it works like this: You put the money in (only what the lender says you have to, again extra goes to pay down the principal), and the lender pays the insurance and tax bills when they come due. The lender wants this because if the taxes aren%26#039;t paid a tax lien will be filed against the property. This will prevent them from foreclosing on the property if you fail to make payments. The same for the insurance. If it isn%26#039;t paid and the house burns down, they won%26#039;t be able to recover their loss if you fail to make payments (they can%26#039;t sell the land for enough to cover the loan).

Now, sometimes when the lender pays the tax and insurance bills, there isn%26#039;t enough money in the escrow account to cover it. That%26#039;s how you end up with a negative balance, because they are still going to pay those bills even with their money. This usually happens when there is an %26quot;unexpectedly large%26quot; increase in taxes or insurance.

Every year, the lender should do an escrow analysis. This means they look at the escrow account balance (positive or negative) and what the %26quot;expected%26quot; tax and insurance bills will be at the end of the year. They use that total to calculate your monthly escrow payment. If the analysis is way off for the year, your payments could be too low (or high) and you will have a negative balance (or a positive balance that is too high if your payments were high).

The Feds put a limit on how much %26quot;extra%26quot; they can keep in the escrow account (it is a percentage of the expected tax and insurance amounts). This also factors into the analysis and final escrow payment amount.

Should you pay te escrow in one lump sum? ABSOLUTELY NOT! It%26#039;s like giving up free money. Think of it this way: if you took the extra $50-100 per month they are asking to cover the %26quot;negative balance%26quot; and put it in a savings account, you could earn interest on it. At 5% (a good money market rate), that%26#039;s like $30-$60 for the year roughly. That%26#039;s almost enough to pay an extra month of escrow. Why give away that $30-$60 dollars? Also, they are not going to reduce your monthly escrow payment even if you do make a lump sum payment. So you will not be saving any money by paying the lump sum. The only effect that will result from paying the lump sum is a high balance in your escrow account at the end of the year and a lower required escrow payment next year.

So, don%26#039;t pay the lump sum, just make the payments as you have been. You have no worries here, so you can relax and keep doing what your doing.

Hope this helps.

Could someone please help me with a loan question.?

loan

You can have negative escrow for many reasons two are: 1) your mortgage company was not collecting enough from the closing point of the loan or they had to pay more than they had previously been collecting to pay so they collect that back plus conceivably enough to pay the higher amount the next time the item is due. Either way, pay it additionally over the next twelve months. It%26#039;s kind of in interest free loan paid back over 12 months.|||Bills are paid from the escrow account as they are due. Sometimes taxes or insurance is due before the full amount is in the escrow account, which results in a negative balance. Continue to pay into the escrow account on a monthly basis as you always have. A negative balance does not hurt your credit in any way.