Okay, let’s be honest, getting a refund check from your insurance company is a pretty sweet feeling. It’s like finding a twenty in your old jeans – unexpected and awesome! But if your home or flood insurance is escrowed, that refund could cause a bit of a headache if you’re not careful.
Escrow: A Quick Refresher
Remember that escrow account your lender set up when you got your mortgage? It’s basically a dedicated savings account where you deposit money each month to cover your property taxes and insurance premiums. Your lender then dips into that account to pay those bills when they’re due. Convenient, right?
The Double Payment Dilemma
Here’s where things can get tricky. Let’s say you make a payment towards your home insurance, but your lender also pays the same bill from your escrow account. Oops! Now the insurance company sends you a refund. Suddenly, you’re flush with cash, but your escrow account might be overfunded.
Why This Matters
If you spend that refund without letting your lender know, your escrow account could end up with too much money. This could lead to:
- Higher monthly payments: Your lender might increase your mortgage payments to compensate for the extra funds in your escrow account.
- Escrow shortages in the future: When it’s time to renew your insurance policy, there might not be enough money in your escrow account to cover the premium.
How to Keep Your Escrow Happy (and Avoid Headaches)
Don’t worry, keeping your finances on track is easier than you think! Just follow these simple steps:
- Give Your Lender a Heads Up: As soon as you receive an insurance refund, contact your lender and let them know.
- Share the Details: Send your lender a copy of the refund notice from your insurance company.
- Follow Their Lead: Your lender will tell you the best way to handle the refund. They might adjust your escrow payments or ask you to send them the money.
Pro Tip: Stay organized! Keep an eye on your bank statements and insurance policy documents to track your escrow payments and catch any potential issues early on.
The Bottom Line
Getting an insurance refund is great, but it’s important to communicate with your lender to avoid any escrow imbalances. By following these simple steps, you can ensure a smooth and stress-free experience.
Have more questions about escrow or your insurance policies? We’re here to help! Contact us today for personalized advice.