Question:

Is it possible to get interest on mortgage escrow accounts?

Answer:

Interest on mortgage escrow accounts may be possible to get - it depends on the state. There has been an attempt to pass legislation to press lenders pay interest on mortgage escrow accounts, but for now only some states require that interest is accumulated on escrow accounts. You have to check if interest on mortgage escrow accounts applies to your state. Again, it will depend on the state and escrow service provider.

How to calculate amount and interest on mortgage escrow accounts?

The amount you are expected to put on mortgage escrow accounts at closing can be calculated when you add up different items you will be paying through the escrow account. For example, if you are paying $1500 property taxes annually, homeowners insurance and other items of $550 per year, adding them up makes a $2050 per year, and your escrow monthly payment will be $170.83.

To calculate how much you will have to pay to the escrow account at closing, you have to calculate when your taxes and insurance become due and consider the 2-month cushion.

For example, if you have a peak of $1750 to pay in taxes and insurance during the 6th month after the purchasing transaction, your six-month escrow payments will total $1024. Added the 2-month cushion, you will have $1366.64 in your escrow account and there will be a shortage of $383.36. Therefore, the maximum escrow amount to pay at closing, allowed by RESPA, will be $383.36 plus twice the cushion of $170.83 which equals $725.02.

If interest is required to accrue on the escrow account for the state, interest on escrow accounts is usually the rate a bank pays on a daily basis to savings accounts.

If there is any surplus over $50 in your escrow account after taxes and insurance have been paid, the lender is required to pay it back to you. If surplus is less than $50, or if shortage occurs, your lender may spread the difference to your monthly escrow payment for the next 12 months, or require that you pay off the shortage within a month.

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