Why Would a scheduled mortgage payment change?
Escrow and PMI Analysis Explained
September 14, 2022
Annual Tax and Insurance Account Disclosure Statements and Private Mortgage Insurance Disclosures can be confusing for new and seasoned homeowners alike.
A mortgage escrow account is where part of your monthly loan payment is deposited to cover some of the costs associated with home ownership. The costs may include but are not limited to real estate taxes, insurance premiums, and private mortgage insurance. Your mortgage company performs an annual escrow analysis examination to determine whether a surplus, shortage, or deficiency exists. MidWest America sends out these notices in the fall and any adjustments to the taxes and insurance portion of mortgage payments becomes effective November 1.
- Surplus - the balance in the escrow account is more than what is needed
- Shortage - there is a positive balance in the account, but there isn’t enough to pay the estimated tax and insurance for the future
- Deficiency - there’s a negative balance in your escrow account
Based on your escrow status, that portion of your mortgage payment could increase or decrease to adjust for the projections for the next year.
Taxes and insurance tend to vary from year to year. Taxes can increase due to a change in deductions or increased assessed value. If you believe your deductions or value are incorrect you can contact your county’s assessor office.
Insurance can increase due to changes in your policy or claims made throughout the year. If you have questions on your policy, you can reach out to your agent. Homeowners are also free to shop around and change policies at any time. If changes are made to your insurance policy, make sure you notify MidWest America so we can get the correct documents from the agent.
Private mortgage insurance or PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.
The annual PMI disclosure contains the current loan-to-value or LTV on your mortgage and your rights as a homeowner. These rights were also disclosed at closing on an initial PMI disclosure. You have the right to request cancellation when your principal balance is scheduled to reach 80% LTV or reaches 80%. PMI automatically cancels when the mortgage is scheduled to reach 78% of the original value of the property.
So if you are one of our mortgage members with an escrow, be on the lookout for our Annual Tax and Insurance Account Disclosure Statements and Private Mortgage Insurance Disclosures coming to your mailbox soon.