Home insurance and mortgages. (escrow, premium, loan, deduct)
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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?
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.
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.
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
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.
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.
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.
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...
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.
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?
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