Breaking Down Your Monthly Payment

Principle & Interest

Principal

Interest

A home must be up-to-date on property taxes to avoid a lien – or tax foreclosure in extreme cases – on your property. Additionally, homeowner’s insurance is required on your home to protect your and the lienholder’s investment. Escrow exists to make sure sufficient funds are available for both of these important charges. An escrow account simultaneously protects your home and eases the burden of remembering due dates and making lump payments when those dates come up.

When you buy a house, you will set up an escrow account at closing. When you refinance, you will have to do the same. Unfortunately, the nature of an escrow account is that it can’t be directly transferred from one servicer to the other. So, depending on what is available in escrow at the time of your refinance, you could wind up paying a rather hefty deposit at closing. Don’t worry though, this will ultimately be refunded.

If you’re shopping for a refinance, your taxes and homeowner’s insurance will likely remain the same after closing. So, you can use current escrow charges to estimate your full post-refinance monthly payment.

The first payment is always due the first full month after the month you close on your mortgage. As an example, if you close any time in the month of September, your payment will not be due until the first of November. This allows plenty of time for money to transfer and the home title to change. It also allows a welcome break in payments for homeowners!