When you buy a home, especially the first time, your lender will often require a mortgage escrow account be established for your homeowners insurance and property taxes. For a more detailed explanation of how this works, you can read our article “What is a Mortgage Escrow account and how does it work?”
So as long as you stay with the same homeowners insurance, the lender will continue receiving an invoice at renewal and will pay out of the escrow account. But what if you decide to change your homeowners insurance in the future? How does that work? And are you allowed to do that? To answer these questions, we have to start with the basics of homeowners insurance.
How homeowners insurance policies work
The standard home insurance policy is issued for a 12 month period of time. As far I know, there is no law (at least in Ohio) that states you MUST wait until that period of time has passed to get different homeowners insurance.
The home insurance policy is yours and as the insured you get the right to make decisions about that policy, including cancelling it on a specific date.
Once your 12 months is over, the next 12 month period is called your renewal. Yes, many people wait until renewal to make a switch, but you are NOT required to.
So I found different homeowners insurance- what happens with my escrow when I switch?
There are two possible situations:
- Switch at your renewal
- Switch at a time other than renewal
Read on for a detailed explanation of how each works, along with super helpful advice for making the switch easy.
Changing homeowners insurance with escrow at renewal
This is the easiest situation. However timing is still important. Most insurance companies send their bill to the mortgage company 30 days before the renewal. This means if you want the switch to go smoothly, you’ll need to switch to your new insurance BEFORE that 30 day mark. This gives the insurance company time to process the application and send the bill to the lender.
Now it’s certainly possible that your prior insurance company may send a bill sooner than 30 days before renewal and the lender ends up with TWO bills and pays one or both or none. The trigger for you to start making calls to the lender and your insurance agent is when you receive a cancellation notice for the new policy. This means it has NOT been paid. It’s usually a pretty easy fix, but you must communicate the situation to your insurance and your mortgage company first.
Changing homeowners insurance with escrow at a time OTHER than renewal
It’s not quite as straightforward as the above example, but definitely doable. This is where you need an insurance agent willing to walk you through the process and offer solid advice (we do this often). Here's the typical procedure....
1. Existing policy is cancelled.
2. Refund check is issued to you, the insured (they CANNOT refund to the mortgage company as the policy does not belong to them. They’re only paying the premium on your behalf).
3. You endorse the refund check and get it to the mortgage company/lender.
4. Mortgage company is billed for the new premium.
5. Mortgagee pays new premium from funds in escrow.
Big Assumption- you are switching to take advantage of premium savings. So it would make sense you have enough money in your escrow account (after depositing the refund check) for the bank to cut a new check. If you don't you'll need to make up the difference.
Some banks are really nice in that any additional premium will just be included in the annual "settle-up" of the escrow. When this happens, they'll just add the amount to your new monthly payment.
Our hope is that after reading this article, you see that changing homeowners insurance with escrow is very doable and you better understand the process. Of course, having an insurance agent that will listen and help you through the process absolutely makes this process the easiest it can be.
We work very hard at making the process easy- from beginning to end, offering advice, guidance and helping complete paperwork to make the switch as easy as possible. Call us at (937) 592-4871 or click below......
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