Tax and Insurance Overview:
Your residential mortgage tax and insurance account is used to collect and disperse funds required to cover homeowner’s insurance, property taxes, flood insurance, and/or private mortgage insurance expenses. This account is sometimes referred to as your escrow account.
Your monthly mortgage payment includes funds to pay for your annual insurance and property tax expenses. These funds are deposited into your tax and insurance account and periodically withdrawn, by Centennial Lending, to pay these expenses. Your tax and insurance account balance changes as these deposits and withdrawals occur. The amount required to keep your tax and insurance account adequately funded is dependent on the actual amount of these expenses and directly impacts the amount of your monthly mortgage payment. In most cases your monthly mortgage payment will increase over time to account for the rising cost of insurance and property tax.
Unfortunately, the amount required to cover future expenses is difficult to predict as the information is not available when Centennial Lending adjusts your monthly mortgage payment. Centennial Lending uses the actual expense amount from the previous year to estimate the amount required to keep your escrow account adequately funded. This often results in a tax and insurance account “deficit” at the end of each year as the property taxes and insurance expenses increase year-over-year.
The unpredictability of these expenses impacts your monthly mortgage payment in two ways:
Deficit: A “deficit” occurs when there is a negative balance in your tax and insurance account. This occurs when there are insufficient funds to cover the tax and insurance payments for the current analysis period. Deficits can be paid in a lump sum or divided by twelve (months) and included in your new monthly payment. Paying a lump sum reduces the increase in your new monthly mortgage payment.
Shortage: A “shortage” occurs when the projected funds in your tax and insurance account are insufficient to cover the projected insurance and property tax expenses. The total shortage is divided by twelve (months) and this new amount is added to your new monthly mortgage payment resulting in an increased payment amount.
Tax and Insurance FAQ:
Still Have Questions?
Please call us at 720-915-9711 or email us at TI@centennial-lending.com.