Vent--underestimating escrow costs

[Howgreat]

So, apparently our mortgage company underestimated our escrow costs and sent us a letter today saying we can either pay $663 or pay $55 extra a month on our mortgage. You would think they would err on the side of caution when they estimate taxes and such for the year. Anyway, my first reaction was, "Guess we'll have to cancel the Disney trip" since I'm Mrs. Gloom and Doom like that. We definitely can't pay the full amount out of pocket right now, because we have several things going on in the next 3 months--medical bills, my sis's wedding and costs associated with that (me, my husband, and our sons are all in the wedding), DS1's bday, and our Dis trip (which is 95% paid for, except for part of the gas/spending money). Now, that I think about it, $55 extra a month isn't terrible; I'm just really annoyed because it seems like every day brings some kind of new bill. Agh! I guess it's just life. On the other hand, if we cancelled our trip, we could pay the medical bills and escrow in full. How many memories would that make, though? *le sigh*

 

[Deb & Bill]

We've had this happen numerous times in our years of home ownership. Sometimes they send us a check because they have overestimated the escrow and othertimes they tell us they have underestimated it. Usually, it is because of insurance or taxes that change.

When the escrow is short, we have just had them divide the amount to bring it up among the payments and then we have a higher mortgage payment for several months until we are caught up.

 

[vicki_c]

We've had this happen many times in our 17 years of home ownership, it's usually with us owing more. I've been in this house for almost 7 years and my payment is over $200 more than it was the first year. (I realized after posting that maybe I should have said a percentage; $200 (sadly) is a small percentage of my monthly payment. I know for many people in other locations that might be a large percentage of their payment).

 

[Southernmiss]

So, apparently our mortgage company underestimated our escrow costs and sent us a letter today saying we can either pay $663 or pay $55 extra a month on our mortgage. You would think they would err on the side of caution when they estimate taxes and such for the year. Anyway, my first reaction was, "Guess we'll have to cancel the Disney trip" since I'm Mrs. Gloom and Doom like that. We definitely can't pay the full amount out of pocket right now, because we have several things going on in the next 3 months--medical bills, my sis's wedding and costs associated with that (me, my husband, and our sons are all in the wedding), DS1's bday, and our Dis trip (which is 95% paid for, except for part of the gas/spending money). Now, that I think about it, $55 extra a month isn't terrible; I'm just really annoyed because it seems like every day brings some kind of new bill. Agh! I guess it's just life. On the other hand, if we cancelled our trip, we could pay the medical bills and escrow in full. How many memories would that make, though? *le sigh*

Has happened often for for us, too. Our will go up again this next month. In 8 years our mortgage payment is now $250 more than when we began. Thanks in part to hurricane Katrina.

We don't do lavish bdays and had no vacation to speak of last few years so that we can cover medical expences, etc. and have an emergency fund. Our only debt is our mortgage.

Had the discussion with my 4 kids this week of this house (2100 square feet) or more trips and they like more space in the house better.

Bills are frustrating but it's part of being an adult.

 

[Alexander]

Yep, we actually expect the dreaded letter each year. We always pay the amount that was short because the mortgage is going to go up anyway due to the increase in taxes. Our homeowners insurance isn't tied into our mortgage, we pay that on our own.

 

[Lehuaann]

This would be called a shortage. The lender underestimated because they under charged you based on what they dispersed last year, or believed what they would need to pay again this year.

Under law, a lender can only collect a certain cushioned amount under RESPA. Therefore, if your taxes or insurance go UP - a lender will go ahead and pay it, but you are responsible for the shortage.

That is quite a hike though. Did your co/city taxes or HO insurance go up?

I would opt with the higher monthly payment for now...and a few months down the road if you come into some extra money, put it toward your escrow account to bring your monthly payment back down.

If the HO went way up, I'd also shop that to bring the premiums back down.

The fun side to being a homeowner.

 

[StitchandPooh'sMom]

It has happened to us several times, too. It is because either your taxes went up or your homeowner's insurance increased. It is not really the mortgage company's fault.

You can look into not escrowing at all and paying your own taxes and insurance - it won't lessen the total amount you are paying each year, but you won't get the surprise letter from the mortgage company. You might be surprised by the tax bill or insurance bill, though!

 

[msmayor]

As others have said, its not the mortgage company's fault at all that your escrow was short. They are required by law to use a very specific formula based on information your town provides about property taxes and your insurance company.

Almost every year, taxes increase...and my escrow almost always runs short. I never pay the shortage in one payment. Paying it in the monthly installment is INTEREST FREE, so you're not paying any more by spreading it out over the 12 months.

 

[ilovemk76]

So, apparently our mortgage company underestimated our escrow costs and sent us a letter today saying we can either pay $663 or pay $55 extra a month on our mortgage. You would think they would err on the side of caution when they estimate taxes and such for the year. Anyway, my first reaction was, "Guess we'll have to cancel the Disney trip" since I'm Mrs. Gloom and Doom like that. We definitely can't pay the full amount out of pocket right now, because we have several things going on in the next 3 months--medical bills, my sis's wedding and costs associated with that (me, my husband, and our sons are all in the wedding), DS1's bday, and our Dis trip (which is 95% paid for, except for part of the gas/spending money). Now, that I think about it, $55 extra a month isn't terrible; I'm just really annoyed because it seems like every day brings some kind of new bill. Agh! I guess it's just life. On the other hand, if we cancelled our trip, we could pay the medical bills and escrow in full. How many memories would that make, though? *le sigh*

How old are your kids?

 

[TheRustyScupper]

1) We have bought several house and MANY rentals.
2) Sometimes the bank does underestimate escrow.
3) But, but often.
4) When they want more, we DEMAND an accounting - in writing.
. . . sometimes there are errors and no extra is needed
. . . when demand is proper, it is usually due to taxes or insurances

 

[bdcp]

It's happened to us multiple times. Not so much they underestimate, but that taxes go up and it increases the cost. One time, they sent us $1300 refund for overpayment which I knew was wrong and the next year they wanted $1300 back lol. I expect my payment to go up every year since our taxes do. This area house prices have gone up all but a couple of years out of the 10 we've been in this house.

 

[gracie1]

This happened the first year of my mortgage. I cancelled my escrow with them and pay it on my own. I don't think everyone can cancel escrow though, can they? I was just outside our flood zone by a mile so that worked in my favor.

 

[Swimalie]

This happened the first year of my mortgage. I cancelled my escrow with them and pay it on my own. I don't think everyone can cancel escrow though, can they? I was just outside our flood zone by a mile so that worked in my favor.

I don't know if you can cancel once you have it but I can tell you that I'm on my 3rd house and have never escrowed. I would rather the money stay in my bank account and let me pay it then hope that some mortgage company estimated it right from year to year.

 

[eeyorethegreat]

This happened the first year of my mortgage. I cancelled my escrow with them and pay it on my own. I don't think everyone can cancel escrow though, can they? I was just outside our flood zone by a mile so that worked in my favor.

We can not cancel our escrow. It was part of the loan agreement and evidently is very common in this area. Our payment has gone up every single year in August.

 

[kathie859]

I don't know if you can cancel once you have it but I can tell you that I'm on my 3rd house and have never escrowed. I would rather the money stay in my bank account and let me pay it then hope that some mortgage company estimated it right from year to year.

I'm with you. I've owned 3 houses and one condo over the past 40 years and have never escrowed. Back in "the day" (before government oversight of mortgages) some unscrupulous lenders would deliberately over estimate escrow and have free use of the money. Now, as other posters have mentioned, the laws governing escrow are very explicit and the penalties for mishandling escrow monies is severe. Most lenders will allow escrow to be dropped once a certain equity level is achieved. But it depends on the lender and the type of mortgage one has.

A reminder for those living in areas where property taxes are tied to the actual value of the property--IF property values are down in your area, contact your local tax collector to request a revaluation if you believe that you are overvalued and therefore overtaxed. It can't hurt and could result in a lower tax bill.

 

[Disneybuckeye]

We also get this letter every year. Occasionally it goes down, but most years it goes up. Just depends on tax levies and if we had an insurance change. I usually assume we will have a $100 increase per month every year. If is is less I am happy.

 

[Sadie22]

We had an escrow for PITI for our first home but for subsequent purchases we have not. There was a problem with that first mortgage company selling the loan but not properly informing us so a payment went to the wrong place and it took a bit to get that straightened out.

OP, it's a fact that homeowners insurance and/or property tax amounts can increase, even though the mortgage and interest payment stays the same. There will be lots of other bills coming as your children grow older and enter school and have different activities. Plan now for what lies ahead.

 

[crisi]

I've also had the underpayment into escrow, as well as the mortgage company screwing up the escrow - leaving me uninsured when my house was robbed (the mortgage company paid the bills - after a lot of phone calls and a letter from an attorney), and now pay my own. Once you recognize that this happens, you can plan and never be flatfooted again, but the first time - it is an unexpected and unpleasant surprise.

 

[ruadisneyfan2]

This happens to us every year. In the 16.5 years we've lived in our house, our taxes went from $3200 to over $8500. That is life. Our homeowners insurance only went from around $400 to 700.
We joke that by the time our house is paid for, our taxes alone will be the equivalent of what our very 1st mortgage payment was.

 

[malibuconlee]

Just a thought...how long have you had the house? Also just making sure you filled out the homestead paperwork?