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Mortgage Escrow account and Bellefontaine Ohio homeowners insurance- Alan Galvez InsuranceSo you've found your first home perhaps in Bellefontaine, Marysville or Columbus and are ready to buy. But during your conversation with your mortgage lender the term "mortgage escrow account" comes up and you don't understand what it means. Here's an easy to understand explanation so you're never confused again.

It is a bank account used to make payments for property taxes and homeowners insurance.  

Pretty simple huh? But it's in explaining how it works that usually trips people up. Read on for examples of how the mortgage escrow account works in the years beyond when you first purchase your house and when you FIRST purchase it. It may seem backwards, but trust me- it's easier to understand this way. 

Here's an example of how a mortgage escrow account would work AFTER the first year of home ownership:
- Your homeowners insurance renewal is $600. 
- The insurance company sends the invoice to the mortgage lender in advance of your renewal date (renewal is usually the one year anniversary of your closing date). 
- The mortgage lender sends a check to the insurance company. 

So how does a mortgage escrow account work when you FIRST buy your house?

- Your insurance agent and you work closely together to determine the coverage amounts and items for your new homeowners insurance policy. 
- When you and your agent finalize the homeowners insurance quote, your agent will communicate the annual premium to the mortgage lender. 
- Using the $600 example above, the mortgage lender divides the $600 premium by 12 (an Ohio homeowners insurance policy is a 12 month policy) which equals $50.
- Your monthly house payment will include the principal & interest for your mortgage loan and 1/12 of your annual homeowners insurance premium. In this example that would equal $50. 
- You're essentially building up the account so when the invoice is due, the money will be there to pay it. 

*Note- when you first buy your house, you will be required to pay the annual premium in full either before closing or at the closing. Why? Because there's no account yet built up to draw from. Insurance is always paid in advance. So if your closing date is September 1, 2015, you will owe the premium from September 1, 2015- September 1, 2016. 

The amount that is being added to your monthly house payment will pay for September 1, 2016- September 1, 2017. Do you see the difference? Again, it's being collected now to pay for a future time. 

*Extra note- in the years following when you first buy your home, it's likely your mortgage escrow payment will increase. Read our article Why Did My Mortgage Escrow Payment Increase? for the most common answers and get ahead of the game!

For more information about  Home insurance for Bellefontaine, Marysville or Columbus, Ohio, give Alan Galvez Insurance a call at 937-592-4871 today!
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Alan Galvez Insurance
134 W. Columbus Ave.
Bellefontaine, OH 43311

 (937) 592-4871

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