Understanding Your Escrow Account

An escrow account may be set up by your lender to collect and hold funds to pay certain property-related expenses. These expenses often include property taxes, homeowners’ insurance, flood insurance and private mortgage insurance (PMI). An escrow account is a convenient way to have SouthPoint Home Mortgage manage the payment of your tax and insurance bills for you.

How It Works

Your monthly mortgage payment may include an amount to be paid into your escrow account for payment of your property taxes and insurance.

Calculating Escrow Payments

  • To set up your escrow account, we'll divide your projected annual tax and insurance bills by 12 and add the resulting amount to your monthly mortgage payment.
  • Each month, we’ll deposit the escrow portion of your mortgage payment into the escrow account to pay your insurance premiums and taxes when they’re due.
  • We also require a 1 month escrow payment cushion to cover unanticipated costs, such as tax or insurance increases. This cushion is also known as the allowable low balance in your escrow account.

Below is an example of your $1,375 monthly mortgage payment with escrow.

Escrow-Payment-Example

What to Expect

The amount you pay into your escrow account is calculated at closing and then reviewed annually. These payments can increase or decrease as your taxes or insurance premiums change. As your lender, SouthPoint Home Mortgage doesn’t control these costs.

Escrow Analysis

SouthPoint Home Mortgage reviews your escrow account each year to make sure there are enough funds to cover your private mortgage insurance (PMI),***, homeowner's insurance** and/or property taxes. This escrow analysis will show you the amount of taxes and/or insurance paid on your behalf in the past year with the funds from your escrow account. The escrow analysis also highlights what we project to pay next year. At that time, there may be a surplus or a shortage.

Escrow Surplus

A surplus is determined based on the projected balance for the next 12 months. Surplus less than $50.00 will be prorated and your monthly payment adjusted accordingly. A surplus of $50.00 or more will be refunded.

Escrow Shortage

Most commonly, an increase in your property taxes and/or insurance will result in an escrow account shortage.

The shortage amount will be divided into 12 months and added to the mortgage payment. You may choose to pay the shortage in full. To avoid a similar shortage in the upcoming year, your new escrow deposit will be calculated for 1/12 of the current tax and insurance payments. If your current tax and insurance payments are more than the previously projected monthly breakout, you may need to contribute more per month.

Annual Escrow Account Disclosure

An Annual Escrow Account Disclosure statement will be sent at least 30 days prior to your payment change to notify you of any change to your escrow payment.

Common Terms

*Escrow Cushion: Funds mortgagor may be required to pay into the escrow account in order to ensure that sufficient funds are available for unanticipated disbursements for escrow items. Typically, the cushion equals two months of escrow payments, unless reduced or eliminated by federal and state law. The lesser amount prevails.

**Homeowner's Insurance: An insurance coverage that compensates the insured in the event of property loss or damage. Insurance is a requirement for all loans. The mortgage agreement requires that the borrower keep the improvements of the property insured against loss by fire, hazards included within the term "extended coverage", and any other hazards, including, but not limited to, earthquakes and floods, for which the lender requires insurance. This includes an HO6 policy for residents of condominiums, which protects "walls-in" items.

***Private Mortgage Insurance (PMI): Provided by privately owned companies on loans with down payments less than 20 percent of the purchase price. The insurance protects lenders in the case of default by mortgagors.

Still have questions about escrow?

Read answers to frequently asked questions here or contact us with your question today.

Where can I see a breakdown of my escrow account?

Escrow information is available on your monthly mortgage statements. Every year, you’ll receive an escrow analysis statement with a complete breakdown. 

  1. Sign in to online banking
  2. Click on your mortgage account number
Can I cancel my mortgage escrow account and pay the costs directly?

You may be eligible to pay your taxes and insurance independently; however, if private mortgage insurance is required on your home, it must be paid through an escrow account. To cancel your escrow account, submit a request for an escrow waiver. Some criteria we consider for escrow waivers are:

  • Loan-to-value ratio (LTV): Your LTV ratio must be lower than 80%.
  • Occupancy: The property must be your primary residence.
  • Escrow balance: Your escrow account balance must be positive.

To request an escrow waiver, please use either of the methods below:

  • Mail us your request at: SouthPoint Home Mortgage, P.O. Box 406, Sleepy Eye, MN 56085
  • Call us at 877-636-5346
What do I do with a supplemental tax bill?

Typically, homeowners pay these bills directly because these charges aren't included in your escrow payment. Supplemental bills often result from tax reassessments, especially for new construction properties. If you’d like to pay your supplemental tax bill from your escrow account, send us a request along with the bill as soon as possible, and we can make this payment on your behalf. Requests may be submitted using either of the methods below. Please note that if a supplemental bill is paid through the escrow account, it’s likely that the escrow portion of your monthly payment will increase.

  • Mail to SouthPoint Home Mortgage, P.O. Box 406, Sleepy Eye, MN 56085
What if I want to change insurance providers?

You may change insurance providers at any time. Please notify us and send us a copy of the declarations page from your new policy so we can update our records and issue payment. The documents may be submitted using any of the methods below. As soon as your new policy is issued, please also contact your previous insurance provider to cancel the old policy. Depending on when your previous policy was paid, there may be a refund issued to you. Typically, refunds should be deposited back into your escrow account to avoid an escrow shortage.

  • Mail to SouthPoint Home Mortgage, P.O. Box 406, Sleepy Eye, MN 56085
  • Drop it off at any of our branch locations
How does changing my insurance company impact my escrow payments?

Depending on your new insurance premium amount, your mortgage escrow payments could increase or decrease. If you change insurance companies, you may wish to request an escrow analysis after the new premium has been paid and any refunds have been deposited back into escrow from the previous policy. This will allow us to adjust your monthly payments according to the new insurance amount.

What happens when my insurance is renewed?

Usually, your insurance provider will send us your annual renewal information. If not, we’ll send you a letter asking for your insurance declaration page. If we don’t receive a record of your insurance renewal, we’ll purchase insurance for the property through your escrow account. This is called Forced Placed Insurance, and coverage may be limited and more expensive than a policy you can buy yourself.

When can I cancel my mortgage insurance?

For some loans, private-mortgage insurance cannot be removed unless you refinance or pay off the loan. In other cases, mortgage insurance can be canceled when the loan-to-value (LTV) ratio reaches a certain percentage. To find out if mortgage insurance can be removed from your loan, please contact us using one of the methods below.

  • Mail to SouthPoint Home Mortgage, P.O. Box 406, Sleepy Eye, MN 56085
  • Call us at 877-636-5346
I have a fixed mortgage loan, why is my payment changing?

The amount of your payment that is applied to the principal and interest due on the loan is not changing and never will if you have a fixed rate mortgage. The escrow portion of your payment will change due to the amount of your property taxes and insurance. SouthPoint must collect enough funds in your escrow account to be able to pay everything that is due for all taxes and insurance.

Can I fund my escrow account with enough money to keep my payment the same?

The minimum amount an escrow payment can be is the total amount of all payments to be made for the year divided by 12 months. If there are extra funds in the escrow account than what is required to pay the disbursements for the year, SouthPoint is required by RESPA to disburse any funds back to the borrower if the amount is over $50.

Can I pay my shortage and have my payment lowered?

Yes, you may pay your shortage in part or in full and SouthPoint can reduce your monthly payment to reflect it. The payment must be received prior to January 1st. However, your payment will likely not remain at the same amount it was prior to the escrow analysis because of the estimated increases of your property taxes and homeowner’s insurance.