Escrow is the name for a reserve account (for lack of a better phrase) they retain in your name (it's your money) to pay insurance, taxes and such with. Some (many) mortage companies are complete and total idiots as noted previously - it's not uncommon for 'em to double pay insurance or taxes, then want YOU to "fix" it.
Conversely, if this is a new home, the previous tax may have been based on the unimproved value (say, $20k), and now it's $140k - these are just examples. Bottom line, this years' taxes could have jumped like $2,400. That means they need $200/mo to recover the shortage (if they were holding $50/mo for taxes last year but had to pay $1800 more, then your account is "short" $1800).
Now...you've got to ALSO increase $200/mo because they now know what the true taxes are going to be going forward - that means they need to up your monthly payment $350 (cover last year, plus the corrected amount). Make sense? Now - you have the option of paying a lump-sum amount to get the shortage in your escrow covered, where the new payment will only jump the amount necessary to pay taxes going forward.
You also have the right to demand a full, auditted accounting of your escrow account to show you where the money went, and how they calculated the new amount needed. It's gonna confuse you....but have them explain it until you understand it.
Conversely, if this is a new home, the previous tax may have been based on the unimproved value (say, $20k), and now it's $140k - these are just examples. Bottom line, this years' taxes could have jumped like $2,400. That means they need $200/mo to recover the shortage (if they were holding $50/mo for taxes last year but had to pay $1800 more, then your account is "short" $1800).
Now...you've got to ALSO increase $200/mo because they now know what the true taxes are going to be going forward - that means they need to up your monthly payment $350 (cover last year, plus the corrected amount). Make sense? Now - you have the option of paying a lump-sum amount to get the shortage in your escrow covered, where the new payment will only jump the amount necessary to pay taxes going forward.
You also have the right to demand a full, auditted accounting of your escrow account to show you where the money went, and how they calculated the new amount needed. It's gonna confuse you....but have them explain it until you understand it.
