What is an escrow account?

An escrow account may be set up by your lender to hold funds to pay certain property related expenses. These expenses often include property taxes, homeowners’ insurance, flood insurance and mortgage insurance. An escrow account is a convenient way to have Navy Federal Credit Union manage the payment of your tax and insurance bills for you.

How it Works

Your monthly mortgage payment may include an amount to be paid into your escrow account for payment of your property taxes and insurance.

Calculating Escrow Payments

  • To set up your escrow account, we will divide your projected annual tax and insurance bills by 12 and add the resulting amount to your monthly mortgage payment.
  • Each month, we’ll deposit the escrow portion of your mortgage payment into the escrow account to pay your insurance premiums and taxes when they’re due.
  • We also require a cushion of 1-2 months’ escrow payments to cover unanticipated costs, such as tax or insurance increases. This cushion is also known as the allowable low balance in your escrow account.

What to Expect

The amount you pay into your escrow account is calculated at closing and then reviewed annually. These payments can increase or decrease as your taxes or insurance premiums change. As your lender, Navy Federal doesn’t control these costs.

Escrow Analysis

Every year, we conduct an escrow analysis to make sure there’s enough money to cover costs for the upcoming year.

  • If there’s been an increase in your taxes or insurance, your escrow payment will increase. In addition, if the projected low balance is below the required escrow cushion amount, the shortage will be spread over 12 months and be added to your payment.
  • You also have the option to pay the escrow shortage in one lump sum. If there’s a surplus of funds in your escrow account, they may be refunded to you.
  • Once your analysis is completed, we’ll send you a summary outlining any changes (called an escrow analysis statement) before the changes to your monthly payment amount take place.

FAQs

Still have questions about escrow? Read answers to frequently asked questions here, or contact us with your question today.

Where can I see a breakdown of my escrow account?

Escrow information is available on your monthly mortgage statements. Every year you’ll receive an escrow analysis statement with a complete breakdown.

When will the escrow analysis for my account take place?

The timing depends on the state in which your property is located. See schedule.

Do I need to pay escrow if I’m tax exempt?

It depends on certain factors. For example, your tax office may charge additional fees outside of your regular tax bill. These fees would need to be paid through your escrow account. If you’re tax exempt, please forward us an exemption approval letter and the updated tax amount using either of the methods below.

Can I cancel my mortgage escrow account and pay the costs directly?

You may be eligible to pay your taxes and insurance independently; however, if flood insurance is required on your home, it must be paid through an escrow account. To cancel your escrow account, submit a request for an escrow waiver. Some criteria we consider for escrow waivers are:

  • Loan-to-value ratio (LTV): Your LTV ratio must be lower than 80%.
  • Loan type: VA and FHA loans generally require escrow.
  • Occupancy: The property must be your primary residence.
  • Age of your loan: Your loan must be older than 6 months.
  • Escrow balance: Your escrow account balance must be positive.

To request an escrow waiver, please use either of the methods below:

What do I do with a supplemental tax bill?

Typically, homeowners pay these bills directly because these charges are not included in your escrow payment. Supplemental bills often result from tax reassessments, especially for new construction properties. If you’d like to pay your supplemental tax bill from your escrow account, send us a request along with the bill as soon as possible, and we can make this payment on your behalf. Requests may be submitted using either of the methods below. Please note that if a supplemental bill is paid through the escrow account, it’s likely that the escrow portion of your monthly payment will increase.

What if I want to change insurance providers?

You may change insurance providers at any time. Please notify us and send us a copy of the declarations page from your new policy so we can update our records and issue payment. The documents may be submitted using any of the methods below. As soon as your new policy is issued, please also contact your previous insurance provider to cancel the old policy. Depending on when your previous policy was paid, there may be a refund issued to you. Typically, refunds should be deposited back into your escrow account to avoid an escrow shortage.

How does changing my insurance company impact my escrow payments?

Depending on your new insurance premium amount, your mortgage escrow payments could increase or decrease. If you change insurance companies, you may wish to request an escrow analysis after the new premium has been paid and any refunds have been deposited back into escrow from the previous policy. This will allow us to adjust your monthly payments according to the new insurance amount.

What happens when my insurance is renewed?

Usually, your insurance provider will send us your annual renewal information. If not, we’ll send you a letter asking for your insurance declaration page. If we don’t receive a record of your insurance renewal, we’ll purchase insurance for the property through your escrow account. This is called Lender Placed Insurance and coverage may be limited and more expensive than a policy you can buy yourself.

Do I need flood insurance?

If your home is in a mandatory flood zone, you must have flood insurance. Even if your property was not in a flood zone originally, it may be designated as in a flood zone by the Federal Emergency Management Agency (FEMA) at any time. Alternatively, your property may be removed from a flood zone. We’ll notify you if either of these changes happen. Please note that obtaining flood insurance coverage is highly recommended, even if your property is not located in a mandatory flood zone. According to FEMA, over 20% of flood claims are filed on properties that were not located in mandatory flood zones.

When can I cancel my mortgage insurance?

For some loans, mortgage insurance cannot be removed unless you refinance or pay off the loan. In other cases, mortgage insurance can be cancelled when the loan-to-value (LTV) ratio reaches a certain percentage. To find out if mortgage insurance can be removed from your loan, please contact us using one of the methods below.

Disclosures