Escrow Accounts
WHAT EXACTLY IS "ESCROW"?
While the term is most commonly used in reference to real estate, it can be used to describe any transaction in which a third party receives and disburses funds on behalf of other parties. In this case, homeowners allow Florida Credit Union to hold funds in an account to disburse when the time comes.
There 2 different types of escrow when it comes to your mortgage:
- Closing: When you purchase a home, closing of escrow means that the transaction has been finalized and the sale is complete.
- Taxes and Insurance: Each year homeowners are required to pay property taxes and insurance for their homes. Instead of having to set aside funds separate from your monthly payment, mortgage servicers, like Florida Credit Union, determine a monthly amount that will go toward the anticipated payment.
Understanding Your Annual Escrow Account Disclosure Statement
Annual Review
Since property taxes and insurance premiums fluctuate over time, we review your escrow account annually to ensure you have enough to cover these expenses. During the annual review, we also estimate how much will need to be in your account to cover payments over the next 12 months. This is how we determine your monthly mortgage payment, which breaks down as follows:
- Principal & Interest: The amount applied to the principal balance of your loan and the interest due.
- Escrow: The amount set aside to cover taxes and insurance for the current year.
Ideally, tax rates and insurance costs will remain the same, and the amount in your escrow account will match the amount due. However, due to changes in tax rates and insurance premiums, you will likely fall into one of the following categories:
Shortage
An escrow shortage occurs when there is a positive balance in the account, but there isn’t enough to pay the estimated tax and insurance. By default, the shortage will be split into 12 even monthly payments to pay with your current year’s escrow. You also have the option of paying the shortage with a lump sum payment. If you are experiencing a financial hardship, please contact Florida Credit Union, at escrowrelief@flcu.org, to discuss your options.
Surplus (Overage)
The amount you have paid into escrow exceeds the amount due for taxes and insurance. If the amount is $50 or less, the surplus is automatically carried over for your 2021 escrow account.
Standard practice for amounts that exceed $50 is for FCU to deposit the overpayment into your FCU savings account on or before February 19, 2021, provided your account is current at the time of the disbursement. If the account is not current, the funds will be held as “Unapplied” until the mortgage account is in a current status.
You also have the option of retaining the surplus in your 2021 escrow account. Many of our members choose to retain the surplus in their escrow accounts to offset potential increases to tax rates or insurance costs. While you have the right to these surplus funds, you may want to consider this option so future increases will have less impact on you financially.
You should have received a surplus form and return envelope along with your 2021 escrow disclosure. To retain the surplus in your 2021 escrow account, simply complete and return this form to us, or you can also make this request by phone, or at any FCU branch. Please submit your request no later than February 18, 2021
Deficiency
An escrow deficiency occurs when there is a negative balance in your escrow account. This happens when we’ve had to advance funds to cover disbursements on your behalf. Not only will you be short for your upcoming tax and insurance payment, but you also owe money to bring your account current.
By default, the deficiency will be split into 6 even monthly payments to pay with your current year’s escrow. You also have the option of paying the deficiency with a lump sum payment. If you are experiencing a financial hardship, please contact Florida Credit Union, at escrowrelief@flcu.org, to discuss your options.
Additional Resources
For more information on understanding your Annual Escrow Account Statement, please download our Guide to Your Annual Escrow Account Statement.
For information regarding your property taxes or insurance costs, please contact your local tax office or your insurance company.