What is a Mortgage Escrow Account?
A mortgage escrow account is designed for the protection of the homeowner as well as the protection of the lender disbursing the mortgage loans. When you purchase a home, you are making a very valuable and important investment. One that you should be very proud of and want to protect. When a lender gives out money to someone for mortgage loans they are taking on many types of risk. Of course they risk the borrower defaulting on their mortgage loans and moving on without even trying to meet their financial obligations. This is a minimal risk considering the collateral they can get in return for the borrower defaulting on their loan. In the case a borrower defaults on their mortgage loans the lender can seize the house and sell it to recover their loss on the defaulted mortgage loan. However, what happens if the lender loses out on the value of the money they loaned out through the mortgage loans because the borrower has stopped paying on the house due to the home being damaged by a natural disaster, seized or auctioned off due to unpaid or back taxes?
This is where the mortgage escrow account comes into play. Mortgage escrow accounts gives the lenders of mortgage loans the peace of mind that the homeowners property taxes are going to be paid, insurance premiums for fire and hazard will be satisfied, mortgage insurance premiums will be paid and any other amounts due will be paid when they become due. This account is created so that all financial obligations concerning the well being of the home are met. Therefore making it impossible for the protective insurance to lapse or be canceled or the home to be auctioned because of delinquent taxes. Mortgage escrow accounts are very important to mortgage loans lenders. Some mortgage loans lenders will even require that the borrower agree to set up a mortgage escrow account before they will consider lending to them.
Outside of being a great form of protection for lenders of mortgage loans, a mortgage escrow account can also be of benefit to the homeowner. With all of the things going on in the process of purchasing a new home there are a few things that can be overlooked. The mortgage escrow account ensures that the important things are not passed over. Because it is an account that is set up to automatically pay the important things by their due date, your memory is not that strained to remember dates and times and amounts and things. Also with your mortgage insurance, fire and hazard insurance and taxes being paid, you don’t have to worry about being protected in the case of accident, damage or even forgetfulness.
If you are uncertain about the amounts or payments included in your mortgage escrow account or have any other questions about your mortgage escrow account you can contact your lender for a detailed revision and explanation of it all. Lenders are more than happy to assist homebuyers with the terms of their mortgage loans and the details of their mortgage escrow account.
