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Tried researching this online but couldn't find a good answer:
Received an escrow shortage notice. $802 lump sum, mortgage goes up $30 or pay $100 monthly additional.
What are the benefits of one vs. the other? The mortgage guy on the phone (citi) kept telling me to just pay the $100 extra monthly but I don't necessarily believe them.
Lets establish a base line(PITI payment) of $1000 a month.
$802 shortage = $66.84 monthly.
New payment is $1066.84 PLUS making up the shortage of $66.84 for a total payment for the next 12 months of $1133.68. After you make 12 of these payments it will go down to the $1066.84 assuming that you tax and insurance bill remain the same. If they go up again this year your new baseline is then $1066.84 and recalculate the same as above.
As far as the question of lump sum or monthly, it is 12 months of interest free financing and right now cash is king so keep your money in the bank. If you do decide to pay over 12 months please reread above so you fully understand calculations and some common misconceptions:
1- your payment will never go back to what it was because your escrow account needs more money each month for your bills. Your new baseline is $1066.84.
2- the bank is not trying to take your money and make interest off of it. This is governed by federal law and that is why they do the annual escrow analysis in the 1st place.
3- yes, your payment can go up every year if your taxes and/or insurance rise. Your mortgage is not going up the bills associated with home ownership are- of course we are just talking about the escrow portion of your payment here. If you have an adjustable rate then the is different.
If you have enough equity you should be budgeting for taxes on your own. The taxes are not for the lender's benefit, they are for your own, if you budget for them you will have incentive to understand where the money goes.
Tried researching this online but couldn't find a good answer:
Received an escrow shortage notice. $802 lump sum, mortgage goes up $30 or pay $100 monthly additional.
What are the benefits of one vs. the other? The mortgage guy on the phone (citi) kept telling me to just pay the $100 extra monthly but I don't necessarily believe them.
Any thoughts?
THanks.
There aren't any benefits. It's whatever fits your personal finances the best.
Received an escrow shortage notice. $802 lump sum, mortgage goes up $30 or pay $100 monthly additional.
I too am confused by this part. What did they mean by "mortgage goes up $30 or pay $100 monthly additional."? So you can either pay $30 or $100 a month extra? They don't usually give you an option like that...if you don't pay the lump sum, it usually HAS to be the shortfall / 12 added to your PITI payment every month.
It may be that your mortgage (PITI) will be going up by $30 anyway because of an increase in taxes/insurance, and you are ALSO short by $802, which would be $802/12 = $66.83 a month. Added to the $30 you are increasing anyway, that would be $100 more a month than you were paying.
So you could go up $30/month AND pay the $802 lump sum
OR
You could just go up $100/month with no lump sum. In this option, assuming taxes/insurance stay the same next year, your payment would reduce by that $66.83 next year.
That is my best guess without seeing the paperwork.
Just to clarify, I meant my total mortgage payment will go up by $100 per month if I do not pay the $802 shortage, it I simply leave things as they are. If I do pay the $802 shortage, my total mortgage payment will only go up by $30. So my question was is there any advantage to paying the $802 vs. not paying.
If you have enough equity you should be budgeting for taxes on your own. The taxes are not for the lender's benefit, they are for your own, if you budget for them you will have incentive to understand where the money goes.
Thanks but we do not have enough equity, currently $30k underwater. I would prefer to pay the taxes myself, but lender did not give us that option when we purchased (didnt put 20% down) and now we can't change it.
The only benefit to you is the miniscule amount of interest the $802 can earn in your bank account versus just paying back the shortage now. It's really up to you if you prefer the lower payment/lower bank balance or the higher payment/higher bank balance scenario.
I too am confused by this part. What did they mean by "mortgage goes up $30 or pay $100 monthly additional."? So you can either pay $30 or $100 a month extra? They don't usually give you an option like that...if you don't pay the lump sum, it usually HAS to be the shortfall / 12 added to your PITI payment every month.
I'm assuming that the $30 monthly increase is the amount the lender is estimating that it will require in order to have an adequate escrow account balance as of 11/1/2011 provided that the current balance is brought up to adequate levels for 11/1/2010 with a lump sum payment here. If they don't then the lender needs the $100 per month to both bring up the current account deficit and then have their target escrow balance as of 11/1/2011.
We've actually had to deal with this quite frequently because of the huge fluxes in homeowner's insurance prices from year to year in Florida. With our annual escrow review, we've ended up with anything from a $600 deficit that had to be corrected (following a bad hurricane year) the following year to a $350 refund check because insurance costs were lower than they projected.
Our usual response in deficit years is to just shrug and go the higher monthly payments route rather than pay a lump sum at annual escrow review time.
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Nice break down, but left out the best option...
