Escrow Accounts: What They Are and How They Work

If you’ve got a mortgage, you may have heard the term “escrow”—but what does it actually mean?

In the world of home loans, escrow often plays a key role in managing important property-related expenses.

Two Kinds of Escrow

There are two main types of escrow arrangements in real estate:

• Loan Origination Escrow: When buying a home, a neutral third party (like a title company or attorney) temporarily holds your earnest money deposit. Once the sale is finalized, those funds are typically applied to your down payment.
• Loan Servicing (Mortgage) Escrow: This is the ongoing account that may be tied to your home loan. A portion of each monthly mortgage payment is set aside to cover property taxes and insurance premiums. (Not all home loans carry an escrow account, but many do.) That’s the type we’ll focus on here.

How a Mortgage Escrow Account Functions

If your loan has an escrow account, each time you make a mortgage payment, part of it goes into your escrow account. When your property tax or insurance bills come due, your loan servicer uses those funds to pay them on your behalf.

Why Escrow Can Be Helpful

Having an escrow account means you don’t have to save up for large lump-sum bills that only come due once or twice a year. Instead, those costs are broken into smaller monthly portions and rolled into your mortgage payment. It also helps ensure your taxes and insurance are paid on time, avoiding late fees or lapses in coverage.

Do I Need to Send My Bills to Shellpoint?

Nope! Your local tax authority and insurance provider typically send your bills directly to your servicer. If anything is needed from you, you’ll be notified.

Should I Give Shellpoint My Homeowners Insurance Policy?

Yes. You’ll need to send a copy of your updated homeowners insurance declaration page. If your property is in a high risk flood zone or part of a condo association, additional documentation may be required. If we don’t receive the pertinent information after multiple reminders, we may purchase coverage on your behalf—often at a higher cost.

What Happens If There’s a Surplus of Money in My Escrow?

Your escrow account includes a small buffer (usually no more than two months’ worth of payments) to cover unexpected increases. If your account ends up with more than needed (typically over $50 in surplus) and your mortgage payment is current at the time of analysis, we’ll send you a refund after your annual escrow review.

Understanding Your Escrow Analysis

At least once a year, we review your escrow account to make sure your monthly contributions are on track to cover your upcoming tax and insurance bills. If costs have gone up or down, your monthly payment may be adjusted accordingly. You’ll receive a detailed statement and, if we have your email, a personalized video explanation.

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Understanding Payment Increases/Decreases

The most common reason is a change in your property taxes or insurance premiums. If your escrow account doesn’t have enough to cover the new amounts, your monthly payment will increase to make up the difference.

What If There’s a Shortfall?

Escrow shortages can happen for several reasons:

• Insurance costs rose unexpectedly: Your insurance premiums are determined by your insurance provider. You can talk with your insurance provider about the increase or shop around for insurance that meets your needs.

·         Property taxes increased more than anticipated: Local government determines taxes based on your property’s assessed value and area tax rate. When we do an escrow analysis, we use last year’s taxes to estimate taxes for the coming year. Sometimes taxes exceed our estimates.

• Due dates shifted: Your taxes or insurance may come due on a new date.
• Inadequate deposits: Not enough money has been deposited into escrow.
• Unexpectedly steep payouts: More money had to be paid out from your escrow in the last year than we had expected.

Pro Tip: Making additional payments now can help ensure your account is properly funded before your next escrow analysis and may reduce the likelihood of a payment increase next year. Sign in to make a payment today.

What Should I Do If My Payment Changes?

That depends on your method of payment:

• Autopay: We’ll automatically adjust the draft amount.
• Online bill pay: Update your payment settings to the new amount.
• Check or money order: Send the new amount so it gets to our office prior to 3 p.m. Eastern Time on the due date.

Could My Escrow Have an Error?

If you think something’s off, contact us through your online portal. We’ll investigate and correct any issues.

Am I Able to Opt Out of Escrow?

Maybe. If your loan type and payment history qualify, it may be possible to request to cancel your escrow account. Some loans—like FHA loans—require escrow.

If you qualify and you’d like to cancel your account, sign in to your online portal and then navigate to the Contact Us page. Under “What is your question about?” choose “Escrow Payment and Analysis.” Then hit “More Specifically” and select “Requesting for my escrow account to be deleted.” Write a detailed description of the reason you’d like to remove your escrow account in the provided Details field. We will go over your request, your mortgage and your payment history and reply to you within 30 days.

You should know that we can’t remove escrow if you have made fewer than 12 consecutive months of on-time mortgage payments.

Note: If you succeed in removing your escrow account, you’ll need to manage tax and insurance payments on your own.

Are Property Taxes in Escrow Tax-Deductible?

Yes, but only the amount actually paid to your local tax authority—not what you’ve deposited into escrow. Check your annual IRS Form 1098 or consult a tax advisor for details.

Have More Questions?

If you have questions about your escrow account, Shellpoint’s customer support team is here to help.