- The greatest advantage of an escrow account is the convenience of having three or four payments consolidated into one. The borrower only has to write one check to his mortgage company each month. The mortgage company disburses the appropriate portion to the taxing authority and insurance companies. While the borrower should always be aware of how much is going to each entity, he doesn't have to worry about how it gets there.
- Having an escrow account absolves the mortgagee of responsibility to a certain extend. As long as he continues to make his monthly payments on time and in the correct amount, he has nothing to worry about. If a mistake is made despite the borrower's diligence, the onus will fall on the bank to correct the error. While the borrower may experience frustration in dealing with the bank, it is ultimately the bank's responsibility to make things right.
- Because taxes and insurance change every year, escrow is recalculated every year. In situations where a person's taxes or insurance costs go down, the escrow account is left with a surplus. That surplus is refunded to the borrower when the bank performs its yearly escrow analysis. This works as a type of forced savings and can be a pleasant surprise as the holidays approach. Of course, this can also work in reverse, where the account suffers a shortage that needs to be repaid.
- The borrower is not the only one who benefits from an escrow account. The lender has peace of mind knowing a borrower is paying his taxes and insurance. If a borrower lags on his tax payments, the municipality may put a tax lien on the property that takes priority over the mortgage. If the borrower lets his homeowner's coverage lapse, the home is not protected in the event of disaster. If a fire, tornado, hurricane, earthquake or other calamity destroys the property, the lender is left with nothing in the way of collateral. Maintaining the escrow account ensures these situations don't occur.
Convenience
Responsibility
Surplus
Lender Advantages
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