As we are new to escrow management, we may have a negative balance in our accounts. In these cases, you should not panic but seek guidance and try to solve the problem.
There are several reasons why you may have gotten into this situation. However, perhaps the first thing that comes to your mind is to refinance your account, but you are uncertain if it is possible. Today we have come to guide you in these cases.
How did I end up with a negative balance in my escrow account?
There are two possible reasons. The first is that you opened a new escrow account with insufficient funds. As a result, it could not be set up to make payments on insurance policies and taxes.
The other reason is that inflation increases insurance and tax payments, which is difficult for your loan servicer to calculate, and usually occurs annually with higher payment amounts on your account as a result. Either way, your loan service will require you to replenish your account to a positive balance.
Most servicers allow 45 days for you to bring your account balance to a positive amount. Failure to do so may result in late fees being added to the past-due amounts in your account. These payments can be considerable, so it is recommended that you cover them as soon as possible.
My escrow balance is negative. Can I refinance it with a new mortgage?
Yes, you can refinance it and even transfer it to your new mortgage. However, this may depend on the equity you have available and the value of the loan you will borrow.
On the other hand, you must notify the loan company that you will hire and ask them if you could use part of the equity to pay off the negative balance. You can also choose to cover it with the equity in your home.
Will I be able to improve the negative amount through refinancing?
Refinancing is a good option but won’t necessarily improve the negative amount. However, you will get many benefits. For instance, your interest payments will be lower, and you will be able to increase your credit scores if you can pay off the old mortgage in full.
How can I end the negative balance in my escrow account?
There are three ways to end the headache of a negative escrow account balance. The first is to review the escrow analysis as in a continuous audit; this will help you ensure you pay the correct amount and are aware of possible insurance and tax payment increases.
If higher amounts are observed, you will have to adjust the payments for the next annual period to pay off the debt little by little. On the other hand, you may also choose to pay the lender the negative balance in a lump sum.
As mentioned above, you will have to include the late payments after a certain period. The best option is to pay all at once as soon as possible.
Another viable option would be to increase the monthly payments to cover the negative balance little by little. It is a good option when the negative amount is very high, and you do not have enough capital to pay it through a lump sum.
Many lenders allow you to pay them this way; others increase the payment period.
If you do not solve the negative balance, the lender will find a way to pay off the debt, usually taking some money from the mortgage.