Refinancing and Escrow Account Strategy

There is one interesting feature about escrow accounts when it comes to refinancing. When you refinance and replace your current mortgage with another mortgage, you will also do the very same thing with the escrow that you have with your current lender. Escrow account can’t be transferred from one lender to the next; you have to pay for a new one, then wait to get your old escrow funds reimbursed.

This can require a sizable amount if you’re refinancing toward the end of the year or just before your hazard insurance policy expires. This can be even truer if you are refinancing several properties at once.

Let’s say your taxes of $150 per month and insurance of $50 per month have been put in your escrow account and it is close to the end of the tax year, yet your current lender hasn’t paid taxes yet or renewed your policy. One note:  There is a fee called an escrow waiver fee or impound waiver fee that is equal to ¼ point of your loan amount. If you decide to waive escrows, be prepared at the discretion of the loan officer you are working with. In reality, the escrow waiver fee doesn’t disappear; the loan office pays for it out of her own loan commission. 

After 10 months of insurance from general insurance company of America, that is $1,500 plus $500, or $2,000. You must come to the closing table with that amount of money, either in the form of a cashier’s check or by rolling those escrow funds into your new loan. If you have five properties that you are refinancing, then that’s $10,000 that you need to reconcile.

When you close on your units, your old lender will send you, in a separate check, the funds in your old escrow accounts, which add up to the amount you just provided for the new Illinois home equity loan. This refund process doesn’t take very long; normally you get your funds back within 30 days.

If you’d rather not tie up your cash for this long or add it to the principal balance of your new loan, you may decide to waive escrows on the new loans entirely. This way, you keep the $10,000 and still get the $10,000 that you currently had in the old escrow accounts, and you pay the taxes and insurance directly.

ArticleSource: ArticlesAlley.com