Whether it has been years or months since you bought your home, you are sure to remember what a complex process it was. There were so many new terms to learn- amortization, good faith estimate, and origination fee… (And with each new term tossed your way you could almost hear an old-fashioned cash register going cha-ching!). Not to mention the mountain of paperwork you had to read and sign. But often one of the most confusing parts of the whole process was when your homeowners insurance got rolled into your escrow account.
So now that you have signed on the dotted line let’s unpack the term “escrow” as it relates to your combined mortgage payment.
Escrow- is an account that holds the money collected by your mortgage lender to ensure payment of property taxes and insurance during the term of the mortgage.
What exactly is included in that monthly payment?
- Principal payment
- Real-estate tax
- Homeowners insurance bill
- Monthly interest payment
Clear as mud? By the list above it can seem like you have little control over your homeowners insurance. Or that making a change will be a lengthy process requiring tons of paperwork and calls to the bank.
Don’t worry it’s simpler than it seems! These are just some of the common myths about homeowners insurance when it is rolled into your escrow. So let’s debunk that so you have what you need to be an informed consumer.
Myth: Switching homeowner’s insurance will mess up my escrow
False. Shopping for a new homeowner’s insurance policy will not hurt your escrow payments. And getting a quote does not cause any changes to your existing policy. No notifications or alerts will be sent to them or your mortgage company. It is risk free. It could even reduce your combined monthly mortgage payments. And who doesn’t like to save?
Myth: It is too complicated to switch
False. Escrowing your new insurance policy into your existing home loan is seamless. There is no paperwork and you don’t even have to call the bank! Your insurance company handles it all for you. They send the bill and proof of insurance to your lender making the switch easy.
Myth: It will cost me money
False. Since your home insurance is escrowed into the mortgage, many times there is no need to make a payment to begin your policy. The bank handles the transaction for you.
Myth: It will require me to do paperwork
True and False. While you won’t have to do a lot of paperwork, you will need to cancel your existing home insurance policy and in some instances the bank may require to send any refunds you receive back to your lender.
Owning a home is a big responsibility and investment worthy of protecting. Don’t let myths about the home insurance process stop you from getting the policy that best fits you. Who knows you may even end up saving some money!