Mary Sue owns a home.  When she bought it she got a great loan from Easy Mortgage.  She doesn’t pay much attention to it, but she knows she has homeowner’s insurance through Expensive Insurance Company.  She also knows that somehow her insurance policy gets taken care of through her mortgage payment.

One day, she walks past the huge sunflowers outside of Shine Insurance and thinks to herself, maybe I should go in and check it out.  A half hour later she skips out with a smile from ear to ear because she saved a bunch of money, got insurance educated, and found a better Homeowner’s policy.

So what does Mary Sue need to know to make a smooth transition?

Well, she should start with a quick refresher on Mortgage Escrow Accounts:

Mortgage Escrow Accounts

• Most Homeowners choose to have their Homeowner’s Insurance paid through a Mortgage Company Escrow Account.  This is a part of your monthly mortgage payment.  For example, If you pay $2000 a month for your mortgage you’re probably paying $1500 towards the loan and $500 into the Escrow Account.
• Escrow Accounts usually pay your Homeowner’s Insurance & your Property Taxes.
• The money in your escrow account grows each month and your Mortgage company pays the entire yearly insurance bill when it’s received.
• An Escrow Analysis is typically done once a year by your mortgage company to make sure they are charging you the correct monthly amount to cover your insurance and taxes.

Ok, so now that Mary Sue understands her Escrow Account what will make this transition smooth?

• Mary Sue must cancel her Expensive Insurance Policy effective the day her new one starts.
• Shine Insurance should send a Certificate of Insurance to Easy Mortgage and notify them that the change has been made.
• Expensive Insurance should send a refund check for the remainder of the cancelled policy term to Mary Sue.  They won’t send the check to her bank.
• When Mary Sue receives that check she shouldn’t be tempted to spend it!!  She should contact Easy Mortgage and arrange to deposit the refund into her escrow account.  This is the most important step.  Why?
  • If Mary Sue keeps the money, Easy Mortgage will raise her monthly payment to make up for having double paid.
  • If she just writes a check for the amount of the refund and just sends it to Easy Mortgage they will apply it to the regular part of the loan.  Since it didn’t go into her escrow account, her monthly mortgage payment will still go up.
  • She must arrange to deposit the refund back into the escrow account.

Once this is complete all should be smooth.  If her Homeowner’s Insurance premium went down then her monthly payment on her mortgage should go down as well.

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