Question About Escrow (PMI, loan, 2015, loan)

[Shutout]

My taxes, PMI, and home insurance are covered by an escrow account. I had the town come in to re-appraise the house because I felt the tax assessment was too high. They ended up lowering it for FY2015.

I would assume that I will have extra money at the end of the year in escrow because of the decrease in taxes (on the year it drops about $300.) Do I get additional escrow money back or do the monthly payments generally drop for the following year (or I'm sure the answer lies within my paper-work).

[kettlepot]

At the twelve month mark, your escrow manager will recalculate your payment and will determine that your account contains an overage which will be refunded to you. Separately, the payment for the coming year will be based on what the strict formulas say are needed not from any pro-rated reduction of your payment to refund the overage collected the year before. Taking all of that into account, you may get a refund AND a reduced payment in the coming year. But don't necessarily count on these things. It could be that you need to accumulate a chunk of money in your escrow account for the "cushion" which equals 1/6 of your combined taxes and insurance. At no times during the year should your escrow account dip below this 1/6 cushion. If there is one month when it does dip below the cushion, you will have an "underage"* which will need to be made up the following year.

* that not "under age" as in young, but "under" with an -age suffix.

[Lacerta]

If you have an escrow account, they have to comply with federal law, which states that their minimum balance for the year cannot be more than 1/6th of (taxes+insurance) for the year. They have to review once a year. My old loan did it in December every year. (My new loan doesn't escrow)

It depends what your current escrow balance was, and what percentage of (taxes + insurance) the extra $300 is. For my area, taxes and insurance are quite low, so 1/6 of my taxes + insurance is only around $250, and $300 extra would definitely put me over the limit, unless I had somehow ended in the negatives. But in some areas, that is hardly a drop in the bucket. For example, if your taxes are $8000 and your insurance is $1000, 1/6 of that total is $1500, so unless you were close to the limit anyway, another $300 may not put you over that limit.

As for whether they will issue a refund. I was $600 over my first year (new construction this is very common to have happen since the taxes they go off are bare land taxes) and my bank sent me a refund check. After that first year, they bank has always sent me a statement that tells where I currently am at and given me the choice of sending/receiving a lump sum check or just adjusting next year's payment accordingly. If you don't respond, they adjust the next year. But I don't know where the cutoff is that they HAVE to issue a check without giving you the choice.

How your taxes are billed could also be a factor. Some areas bill 6 months in arrears (mine do), some bill immediately in arrears, and some bill in advance. So your next bill could be for part of 2014, 2015 or 2016 depending on what month they bill and what times it covers. That could make a difference as well.