Question about my loan documents

[Anonymous]

On the page:  Voluntary Escrow Payments, my mortgage states:

“The bills paid out of your escrow account are expected to increase substantially after the first year...

Then the box is checked: "because of an expected increase of your property taxes".  Under normal escrow practices,  your scheduled escrow payment in the second year could be much higher than the first.  You may voluntarily choose to make higher payments during the first year to reduce or eliminate the scheduled payment increase in the second year.  Contact ——- Bank if you are interested in doing this.”

okay, what does that mean?  Dang, you need to be a lawyer to even read this stuff!!

help!!

[Anonymous]

I believe they are just telling you that the tax portion of the escrow can go up each year depending on changes to your local tax rates. Also, you will pay a smaller amount in year one vs year two and after.

[Anonymous]

Thanks. 

[Anonymous]

Is it new construction? If so you won’t a proper evaluation for taxes until the city does a assessment.

[Anonymous]

Nope, 60 year old house.

[JVille]

Your Tax and Insurance payments will only change over time as taxes on the home go up or down and whatever the Insurance you purchase changes over time.
It’s only on New Construction where you can see significant changes. So don’t let that “Statement” concern you.

[CreditInspired]

---

@Anonymous wrote:

On the page:  Voluntary Escrow Payments, my mortgage states:

“The bills paid out of your escrow account are expected to increase substantially after the first year...

Then the box is checked: "because of an expected increase of your property taxes".  Under normal escrow practices,  your scheduled escrow payment in the second year could be much higher than the first.  You may voluntarily choose to make higher payments during the first year to reduce or eliminate the scheduled payment increase in the second year.  Contact ——- Bank if you are interested in doing this.”

okay, what does that mean?  Dang, you need to be a lawyer to even read this stuff!!

help!!

---

A simple example:

Let's say the annual property taxes are $2K first year. The lender is just giving you advance notice that the second year's property taxes could increase. In this example, I'm going to use $3K for the second year.

So for first year on the $2K, you are paying one-twelfth of $2K into escrow, which is $166.67/month.

If your property taxes increase to $3K, you will have to pay $250/month into escrow--a monthly increase of $83.33 in second year. So the lender is giving you the option of increasing your first year monthly escrow payments in order to offset the second year increase. 

Now in my specific case, I had the option of paying the second year increase amount ($1K) in full because I wanted my monthly mortgage payments to remain the same. 

Hope this helps.