Understanding Escrow Accounts | Clearwater Credit Union
Understanding Escrow Accounts
An escrow account is a financial arrangement you may have with your mortgage servicer whereby they collect and manage the distribution of funds for your property taxes and homeowner or flood insurance premiums.
At Clearwater, we manage escrow accounts for some, but not all, of our members who have mortgage loans. Your loan type and/or your loan-to-value ratio, may require us to manage your escrow account. For others, it’s a choice you make during your mortgage closing process. Your mortgage loan officer will help you determine whether or not we’re required to manage it for you.
How an Escrow Account Works
If Clearwater manages your escrow account for you, here’s how it works. At closing, we’ll:
- Estimate your annual property taxes and homeowner and/or flood insurance costs,
- Divide that number by 12, and
- Add that amount to your monthly mortgage payment.
When you make your monthly payments, we’ll deposit the tax and insurance portion of your monthly payment into your escrow account. When your property taxes and insurance premiums come due, we use your escrow funds to pay them for you.
Please note that we may require a deposit of up to two months’ worth of escrow payments at your loan closing as a cushion to cover unexpected increases in property taxes and insurance premiums.
If your escrow estimate is too low and there’s not enough to cover the full amount of your taxes and insurance, we’ll make an adjustment for the next year, which could result in a slight increase in your monthly payment. You can also choose to pay that shortage in one payment.
The good news is that if your taxes and insurance are paid in full for the year and there is a surplus of funds in your escrow account, we’ll deposit that money back into your Clearwater account.
How to Avoid Escrow Surprises
Review your annual escrow statements carefully, which we send out quarterly. To avoid escrow surprises, please let us know if your homeowner or flood insurance premium changes or if you have a material change in coverage. This can affect your overall costs and how much you need in escrow, which can either increase or decrease your monthly escrow payment.
Paying Taxes and Insurance After Your Loan Is Paid in Full
Once you’ve paid off your mortgage loan, you’re responsible for paying your property tax payments and insurance premiums moving forward. Those lump sum payments, often thousands of dollars, can catch you off guard, so watch for those tax statements.
Questions about escrow accounts? Just give our Mortgage Servicing Team a call at 406-523-3315 or email REServicing@clearwatercreditunion.org.