Escrow and Home Insurance | Travelers Insurance (2024)

FAQs

Why am I paying escrow and homeowners insurance? ›

Your mortgage lender will deposit the escrow amount in the account each month and then pay your insurance bill, real estate taxes, and, if necessary, your private mortgage insurance bill when they are due. An escrow account helps ensure that your homeowners insurance premiums and real estate taxes are paid on time.

Homeowners insurance can be paid through an escrow account or directly by you to your insurance company. An escrow account is a type of savings account managed by your lender that sets aside money for things like home insurance and property tax payments.

However, if you have to keep an escrow account for certain required payments, such as mortgage insurance, you can still remove your regular homeowners insurance premium, property tax payments or both from your escrow account.

Escrow accounts can provide peace of mind and convenience as they reduce the burden of having to pay your homeowners insurance premiums and property taxes yourself. Another benefit is that you can still shop around with different insurers whenever you like and save money by changing your policy.

You can try to lower your property tax bill to reduce the escrow payment that typically makes up much of your monthly mortgage payment. Tax assessments are sometimes too high following real estate market corrections or local rezonings, for instance.

An increase in your escrow payments could be due to tax and insurance rate fluctuations. Other events might increase your payments as well. For example, the value of your home may increase, pushing up your property tax bill. Or, your insurance bill may increase if you remodel and add an extra bedroom to your home.

Lenders also generally agree to delete an escrow account once you have sufficient equity in the house because it's in your self-interest to pay the taxes and insurance premiums. But the lender can revoke the waiver if you don't pay the taxes and insurance.

Your escrow payment would likely decrease if you find cheaper home insurance elsewhere. But it all depends on the timing of when you switch companies. For example, say you find cheaper home insurance, but at the same time your property taxes are set to increase for the following year.

Escrow is an easy way to manage property taxes and insurance premiums for your home because you don't have to save for them separately. You're setting aside money for them every month, which is often easier than trying to find the money for lump-sum payments throughout the year.

Cons of escrow

You may have to keep an extra two or three months' worth of property taxes and insurance premiums as a cushion, or “escrow reserve.” It's only an estimate: Your monthly payments are typically based on last year's bills, but that's only an estimate.

Does home insurance automatically renew with escrow? ›

Whether your escrow account automatically pays your home insurance depends on the terms of your mortgage agreement and the practices of your mortgage holder. If your mortgage includes homeowners insurance in escrow, your lender will typically use funds from the account to pay your insurance premiums when they are due.

You may receive a refund check from your prior homeowners insurance company if you cancel your policy before it expires, reimbursing you for the coverage you already paid for. You may also receive a refund in the event your lender makes a payment to your old insurer.

Some lenders or loans insist on escrow accounts, so you may not have a choice in whether to include homeowners insurance in escrow. Other lenders may make escrow optional if certain criteria are met. In this case, you can pay home insurance and property taxes yourself.

Is an escrow account required if I'm buying a house without a mortgage? No. Mortgage escrow accounts are typically only required with certain types of loans — if you're not financing your home purchase with a mortgage loan, it's not a requirement.

You could see a rise in your mortgage payment for a few reasons. These include an increase in your property tax, homeowners insurance premium, or both. Your mortgage payment will also go up if you have an adjustable-rate mortgage and your initial rate has come to an end.

You pay for PMI as part of your monthly escrow payment. That means in addition to paying your property taxes and homeowner's insurance into your escrow account, you also pay your monthly PMI fee into the escrow account as well.

FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment. If you don't have enough cash on hand to pay the upfront fee, you are allowed to roll the fee into your mortgage instead of paying it out of pocket.