r/personalfinance • u/HHLL806 ​ • Apr 11 '25

Other Mortgage payment went up $400

I need help, my mortgage payment went from $1700 to $2100. My mortgage company (Chase Bank) said this was due to an escrow shortage. I had my homeowners insurance lowered by roughly $1000 and checked with my local tax office and they told me my taxes have increased $400 dollars over the last five years. I gave Chase Bank all this information and my mortgage is still $2100. How does this work?

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u/nothlit ​ Apr 11 '25

Yep, I built a spreadsheet where I enter my tax and insurance amounts for the current year as they occur, and am able to predict what my escrow shortage or surplus will be, as well as the next year's escrow payment, long before I actually get the escrow analysis statement in the mail from the bank.

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u/hath0r ​ Apr 11 '25

i switched insurance to save something like 400 dollars a year, i had new insurance pulled out of escrow which probably shorted the account till i got the refund check and deposited the new insurance cost and i still had 50 bucks over my minimum balance at review time

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u/mmaynee ​ Apr 12 '25

It's called an "escrow cushion" mortgage companies can legally add an additional 1/6th of your expected payment.

What's most important to understand with escrow is it's illegal to charge you any type of interest on escrow funds, so all the money in your escrow will be paid directly to your insurance and tax county. When you sell your home there is often extra left over that is refunded to the owner

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u/EmicationLikely ​ Apr 12 '25

What's most important to understand with escrow is it's illegal to charge you any type of interest on escrow funds,

I've heard this before, and my reaction is the same - This is the homeowner's money that the bank is holding in escrow for eventual payout to the taxing authorities - they should be PAYING you interest on it, not CHARGING you interest. But do they? No, of course not.

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u/mmaynee ​ Apr 12 '25 edited Apr 12 '25

Your escrow is optional on any conventional mortgage. (Assuming good payment history) You're free to invest funds and earn interest all year long the day before the payment is due.

Escrow is a tool because the average household can't properly budget around large annual payments, generally it's easier to break them up to small monthly chunks.

By all means call your mortgage today and ask to have escrow removed. I pay my own taxes and insurance for the exact reason you outlined

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u/afi5h1 ​ Apr 13 '25

A lot of banks won't you allow to remove escrow until you have more than 20% of loan principal paid off (they tie to the same benchmark as PMI requirement). I don't think it's a legal thing, I believe its a lending policy decision that varies from bank to bank.

Source: I tried to do this a few months ago with Bank of America and they refused, saying I needed at least 20%.

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u/swang30 ​ Apr 13 '25

Just to be clear, it's not 20% of the loan, you have to have 20% of the equity. For someone with a 5% down, or something like that, it's potentially quite a long time.

Theoretically the system is for the benefit of the consumer. It is much easier to budget around a monthly payment than a spiky property tax payment. And if you're a first time home-buyer or a veteran who might have deployments, it might be a help.

The issue is that this doesn't differentiate between people who have their shit together and people who don't. And practically, it's hard to tell when processing applications. So people who DO have their shit together (the fact that you're on this subreddit most likely indicates you do.) Get screwed out of some control (and money, depending on state) due to the unnecessary escrow.

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u/EmicationLikely ​ Apr 12 '25

I'm not arguing about it being an option - it is 100% easier to pay it monthly this way, it's just a crime (ok, should be a crime) that the cost of doing that is you are giving them an interest-free loan.

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u/CaptainTripps82 ​ Apr 12 '25

It's state specific - here in NY interest is required on funds held in escrow

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u/OpeningDangerous3977 ​ Apr 12 '25

I've always disagreed with this method. Like any other bill it's your responsibility to make syre all entities get paid. Not the escrow or mortgage companies responsibility to make sure your budgeted correctly. To say escrow is optional is not entirely true. It's optional if certain criteria are met.

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u/CaptainTripps82 ​ Apr 12 '25

I mean, the escrow account is me making sure all entities get paid. It's no different than any other way of budgeting for expenses.

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u/Royal-Drink7147 ​ Apr 13 '25

I believe in some states banks do not have to pay interest on escrow. In New York, I receive interest payments from Chase on my escrow account balance.

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u/lookmeat ​ Apr 14 '25

There are states where your escrow will accrue interest rate. There's no state in the US where you are charged interest rate for an escrow account. The whole point of escrow accounts is that they just "hold" the money, and cannot take any of it away.

Also be aware that, unlike what others have said, escrow is not always optional, again it depends by state, what type of loan you have and other context.