Home Mortgage Refinancing Guide

Your mortgage payment that includes loan Principal, mortgage Interest, property Taxes, and homeowner Insurance is commonly referred to as PITI. Payments of this type are often paid through an escrow company. Your mortgage lender will receive the loan principle an interest to pay down your mortgage loan.

The escrow company will then pay your homeowners insurance policy premiums and property taxes. Lenders often structure loans in this manner to reduce their risk by ensuring your homeowners insurance and property taxes are paid in a timely manner.

The insurance and taxes portion of your monthly payment is not paid to the lender although they may hold it until the payments are due. This allows the lender or Escrow Company to collect interest on your money. Suppose for instance the property taxes on your home are $3,000 per year. You will pay $250 per month in addition to your Principle and Interest for the Taxes. The lender or Escrow Company will hold your money until the year’s end when it will be paid to the County for your Property Taxes.

If you financed your home with a fixed mortgage rate the Principal and Insurance portion of your payment will not change from one year to the next. It is likely that your Taxes and Insurance will change when your insurance policy is renewed or the property taxes on your are reassessed. It is a good idea to anticipate these increases and allow room in your budget for the changes.

Escrow Companies are notorious for not keeping up with changes in your Property Taxes and Insurance. If this happens you could receive a bill for the asking you to bring your escrow shortfall current. This money isn’t going to your lender but is being used to make up the difference in the higher amount of your Property Taxes and Homeowners Insurance. You can avoid a shortfall in your escrow account by notifying the Escrow Company whenever you receive a change in your insurance policy or tax information from the county you live.