U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Real Estate > Mortgages
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 05-20-2015, 07:25 AM
 
10,282 posts, read 6,538,131 times
Reputation: 10861

Advertisements

I found this info online but have a question about it.

Insurance: You will pay one year of homeowners’ insurance premiums at your home settlement as part of your closing costs, and then your lender will collect one-twelfth of your annual insurance premium in this account with each mortgage payment. While most lenders require you to pay your homeowners’ insurance this way, some offer you the option to pay the insurance company directly rather than include it in your monthly bill.



Does this mean that you have to secure a years worth of insurance payments as a security deposit?

Do you still also have to pay for insurance on your mortgage each month that first year or are payments deducted from the account?
Reply With Quote Quick reply to this message

 
Old 05-20-2015, 08:01 AM
 
10 posts, read 7,068 times
Reputation: 47
I actually just spoke to my insurance agent about this yesterday.

I should be closing on my new house on June 1st, and I do need to pay one year of premiums in advance. You are paying ahead for your insurance. Through my mortgage lender I'm also having an escrow account set up to deduct taxes and home owners insurance. With each payment, the mortgage lender will add the monthly cost of taxes and insurance to the monthly cost of the mortgage. When your next insurance premium is due (a year from now) they will have the money in an escrow account. Next year your insurance company will bill your mortgage lender and they will use the money in escrow pay the insurance premium.

My insurance company have me the option of paying them prior to closing or bringing the amount to closing. If I were to do the second option, my insurance company would essentionally bill my mortgage lender, and I would then pay them the amount.

Hope this helps.
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:06 AM
 
10,282 posts, read 6,538,131 times
Reputation: 10861
Quote:
Originally Posted by A2Cbus View Post
I actually just spoke to my insurance agent about this yesterday.

I should be closing on my new house on June 1st, and I do need to pay one year of premiums in advance. You are paying ahead for your insurance. Through my mortgage lender I'm also having an escrow account set up to deduct taxes and home owners insurance. With each payment, the mortgage lender will add the monthly cost of taxes and insurance to the monthly cost of the mortgage. When your next insurance premium is due (a year from now) they will have the money in an escrow account. Next year your insurance company will bill your mortgage lender and they will use the money in escrow pay the insurance premium.

My insurance company have me the option of paying them prior to closing or bringing the amount to closing. If I were to do the second option, my insurance company would essentionally bill my mortgage lender, and I would then pay them the amount.

Hope this helps.
So the second year you pay less on the mortgage because they are using a portion of the money in escrow to pay for the insurance?

That's the part I don't get. How long does that insurance "deposit" as I would like to call it stay on the mortgage.
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:12 AM
 
6,361 posts, read 7,351,780 times
Reputation: 10822
Quote:
Originally Posted by so954 View Post
Does this mean that you have to secure a years worth of insurance payments as a security deposit?
No, it's not a security deposit. You're simply paying for a 1-year insurance policy at closing.

Quote:
Originally Posted by so954 View Post
Do you still also have to pay for insurance on your mortgage each month that first year or are payments deducted from the account?
Yes, you make payments into your mortgage escrow account each month so that, by the end of 12-months, you'll have enough money in the account to pay for the next year's insurance policy.
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:17 AM
 
6,361 posts, read 7,351,780 times
Reputation: 10822
Quote:
Originally Posted by so954 View Post
So the second year you pay less on the mortgage because they are using a portion of the money in escrow to pay for the insurance?

That's the part I don't get. How long does that insurance "deposit" as I would like to call it stay on the mortgage.
No, you won't be paying less on the mortgage unless the insurance (and/or taxes) go down. Most likely, your insurance premiums will increase so you'll need to pay more into your escrow account to be able to cover the yearly payments.

Don't call it a "deposit"--because it's not.

EDIT: As long as taxes and insurance are paid through an escrow account--and not paid by you directly when they are due--you will need to pay an extra amount with your mortgage payment to go into the escrow account.
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:19 AM
 
Location: Rural Central Texas
3,581 posts, read 9,015,350 times
Reputation: 5402
No. You are paying your first years premium. Insurance is paid for in advance. The monies going to escrow are collected to pay for the subsequent years premiums.

At closing you will pay for this year, next year the mortgage company will pay from the escrow account funds.
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:20 AM
 
10 posts, read 7,068 times
Reputation: 47
The easiest way I can think to explain it is you pay your insurance forward. Kind of like you go to the grocery store and buy an apple, you pay for it before you eat.

Your insurance company bills you up front for their product. You don't typically drive your car around for a year and then pay your insurance.

So the money for your first year of home owners insurance is either included in your closing cost, paid at closing, or paid to you insurance company prior to closing.

Then each month (for every year you live in your house and including your first year), your mortgage company adds 1/12th the insurance premium to your mortgage bill. Then at the end of first year the mortgage lender take this money and pay it to your insurance company (paying your premium for the follwing year). The next year they do the same, collect 1/12th of your insurance premium each month, and then at the end of the year again will pay your insurance again. So on and so forth...
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:50 AM
 
10,282 posts, read 6,538,131 times
Reputation: 10861
Quote:
Originally Posted by A2Cbus View Post
The easiest way I can think to explain it is you pay your insurance forward. Kind of like you go to the grocery store and buy an apple, you pay for it before you eat.

Your insurance company bills you up front for their product. You don't typically drive your car around for a year and then pay your insurance.

So the money for your first year of home owners insurance is either included in your closing cost, paid at closing, or paid to you insurance company prior to closing.

Then each month (for every year you live in your house and including your first year), your mortgage company adds 1/12th the insurance premium to your mortgage bill. Then at the end of first year the mortgage lender take this money and pay it to your insurance company (paying your premium for the follwing year). The next year they do the same, collect 1/12th of your insurance premium each month, and then at the end of the year again will pay your insurance again. So on and so forth...
So when do you get back the money that you paid for the first years insurance? At the end of the loan? When you sell your house? never?

Seems like you are paying for the first year, and also paying insurance each month.

As far as car insurance, I don't pay a year in advance. I pay it monthly.
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:54 AM
 
Location: Texas
42,289 posts, read 49,879,075 times
Reputation: 67170
See if you can skip out of the escrow account. I wouldn't do it (and I don't).
Reply With Quote Quick reply to this message
 
Old 05-20-2015, 08:55 AM
 
10,282 posts, read 6,538,131 times
Reputation: 10861
Quote:
Originally Posted by stan4 View Post
See if you can skip out of the escrow account. I wouldn't do it (and I don't).
Wouldn't do what? Skip out or pay it yourself?
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Real Estate > Mortgages
Follow City-Data.com founder on our Forum or

All times are GMT -6.

© 2005-2018, Advameg, Inc.

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top