Paying more on your mortgage and escrow ?!?!

[Anonymous]

So I had a conversation with a friend of mine who had recently purchased a modest house. We are both engineers and she could have got more home for the amount she makes (she makes more than me I think ). Well, I was commenting on such a smart choice she made by getting something that she can then double up on payments and lower her principal. Well, she said it didn't work that way (in a snappy tone might I add). We then got deep into this conversation and she began to say how when she pays extra on her payment, they put this money into an escrow account (not really too familiar with this term) and do not deduct it from her principal. WHAT! Yeah, she said more but I was gone after that, I really don't remember it.

What I took from the conversation is that this money goes into excrow and does not lower your principal thus doing nothing to minimize the balance that interest is calculated off of. Is this true? Is this only on certain types of mortgages? Is this something that you can fight? Is it only done on a month by month basis or is all the money you ever over paid get dumped into this escrow account? What is the purpose (if true)? Please let me know because I was thinking about purchasing a home and doubling up on it but I may have to think about this escrow issue.

[Anonymous]

It has been my experience, and have had several mortgages over the years, that extra monies sent can be put toward principal. My statements have a place to choose where the extra money goes. Principal, escrow, etc.  Have not have an issue to date.

[Anonymous]

Exactly-
You can specify what the additional payment is for-
principal, escrow, future payment.

The lender can not hold excess $ in escrow-

I recently received notification my escrow holding was going up $10 a month. BUT they held too much escrow this year and sent a check for $206.

[MidnightVoice]

What they said

[fishbjc]

My mortgage statement has a line for additional principal.  This is a good thing because if you ever have an illness, some companies will let you take the $$$ from the additional principal and move it over to a regular payment.  I have Chase Mortgage now, but $ Bank also accepted additional principal.

 I have heard of sub-prime lenders who do not allow this.  

[Anonymous]

Thanks for all of the amazing information ... as usual. Must have been very sleepy last night because, this morning I looked all over the Mortgage, Auto, and other Installment Loans board and couldn't find my post!

Finally gave up decided to read here and there it was.

As far as my coworker is concerned ... her cattyness is going to cost her one month ... then I will divulge this information to her. Thanks.

[fishbjc]

For some reason, some people don't like being 'helped'.  I prefer to accept all the help I can get.

If she overpays escrow, she will either receive a check or can move it over to principal.  I always pay something extra...even if it's ten bucks...it all adds up!

[Anonymous]

Usually the money you pay that goes into your escrow account (which would be included in your total monthly payment) is in fact a separate account that is used specifically to pay for your property taxes and hazard insurance when it becomes due yearly (or semi-yearly for some state taxes).  Some people like to pay escrows with their loan in any case that they might not have money when insurance/taxes become due but that does add a bit to your monthly payment.  If you want to pay more towards your principal always make sure you notify them one way or another because these people who received payments can be very clueless sometimes.  I remember one of my clients paid an extra month of principal with his payment and the lender somehow "lost it". Can you believe that?!!! Took them about a month to find where the funds were but that is definitely a headache you want to avoid!

[Anonymous]

How much a bank can hold in escrow (for taxes, homeowner's insurance) is limited by Federal law....(it's 2-8 months at settlement depending on if you have annual or semi-anual tax payments and when they are due). They ae allowed a 2 month "cushion" after the payment to the governments.  She may need more $ in escrow for now because of increased taxes etc (they can calculate the amount each year) - if she bought a new property her taxes were calculated on the vacant land value to start and will adjust very quickly and the bank knows this so they may be trying to make up a deficiet. They may have paid the entire amount due and have her running in the red for now.

One extra mortgage payment (even broken up over 12 months) will bring your mortgage life down to about 22.8 years from 30 years....

Message Edited by Lady_Scarlet on 12-17-2007 02:34 PM