Monthly mortgage payment questions - Hazard Insurance and County Taxes

8 Replies

My lender sent me the itemized monthly mortgage payments I'll be making. Along with the principle and interest are two items I had questions about:

1) Hazard Insurance - does this go away once I'm covered by my own landlord insurance policy? Do I have to have this?


2) County Taxes - A monthly payment for this included in the mortgage. Does the lender pay the property taxes for me from what I pay them? I'm confused about this item.

No, those won't go away.  The lender will make the payments to your property insurance company and the county for the taxes.  These amounts you're seeing are the escrow amounts.  You pay these each month and the lender makes these payments as they come due.  More correctly, the loan servicer does this.  They're they ones you send your payments to.  They make these tax and insurance payments as well as sending money to the actual lender.

Once a year they will do an "escrow analysis" and recalculate the escrow amount.  That typically goes up a bit each year as the taxes and insurance go up.  Early in the loan, though, these can go up or down a bunch.  That's because they almost always get this wrong when the loan is originated and it takes a few years of adjustments to stablize them.

When they do that analysis, they may want an immediate payment of a shortage, may send you a check if there's an overage, or they may adjust your payment.  Or some combination.

Hi Jeff,

If the property you're buying is in a homeowners association that has a master insurance policy, you would still have to have some type of homeowners insurance to cover the inside of your home. These are estimates in the itemization and you have the right to shop around for the best deal. Whether you're renting it out to someone as a landlord or not, you'll have to have some type of coverage. I'm not sure if i'm answering this correctly for you, but let me know.

On taxes, (and insurance for that matter) the lender will pay these items out of the total monthly payment you make. Part of your closing costs will also be an impound account that will be created to pay taxes and insurance. So you make one mortgage payment, and it covers your mortgage, taxes and insurance in one.

Originally posted by @Jon Holdman :

No, those won't go away.  The lender will make the payments to your property insurance company and the county for the taxes.  These amounts you're seeing are the escrow amounts.  You pay these each month and the lender makes these payments as they come due.  More correctly, the loan servicer does this.  They're they ones you send your payments to.  They make these tax and insurance payments as well as sending money to the actual lender.

Once a year they will do an "escrow analysis" and recalculate the escrow amount.  That typically goes up a bit each year as the taxes and insurance go up.  Early in the loan, though, these can go up or down a bunch.  That's because they almost always get this wrong when the loan is originated and it takes a few years of adjustments to stablize them.

When they do that analysis, they may want an immediate payment of a shortage, may send you a check if there's an overage, or they may adjust your payment.  Or some combination.

 Wait...my lender pays my insurance company? So I never pay my insurance company directly? So if I get extra coverage like an umbrella policy, does my lender pay for that too (with a higher monthly payment from me of course)?

Umbrella policy, car insurance those will be separate, you'll pay your insurance agent monthly or bi annually.  Lender will pay your taxes and homeowners insurance out of escrow, which becomes part of your mortgage payment.

@Jeff L.

If you elect to obtain additional insurance, like the umbrella you mentioned, no, this is done outside of the mortgage company.  You will pay the insurer directly.

Your mortgage payment is PITI... Principal, Interest, Taxes, and Insurance. The mortgage company will collect the TI (taxes and insurance) from you on a monthly basis, and then pay those bills when due, to ensure that the bills get paid and their lien position doesn't get primed or the house burn down without coverage. Nor does the mortgage company want to gamble on whether or not the borrower will have sufficient funds to pay when do. As @Jon Holdman said, be prepared for annual changes in the escrow amount due to increases in taxes and/or insurance.

Having said that, it's not uncommon for mortgage companies to give you the option of escrowing the TI once your LTV gets low enough.

The lender is only going to pay for the insurance directly on the property.  You have to provide them with the information about the policy and a contact with your insurance agent.  Failure to do that will result in them putting a "force placed" policy on the property.  These are VERY expensive.

Have you actually closed yet?   If not, be aware that at closing you have to bring a wad of money to pre-load the escrow account.  This is typically 14 months insurance payment plus several months taxes.  The insurance company gets paid for one year out of the closing money and the other two months go into the escrow account.  You will, however, get a credit from the seller for any taxes that are owed by the seller but haven't yet been paid.  Taxes are typically paid either at the end of the year or in the spring of the following year.

Originally posted by @Jon Holdman :

The lender is only going to pay for the insurance directly on the property.  You have to provide them with the information about the policy and a contact with your insurance agent.  Failure to do that will result in them putting a "force placed" policy on the property.  These are VERY expensive.

Have you actually closed yet?   If not, be aware that at closing you have to bring a wad of money to pre-load the escrow account.  This is typically 14 months insurance payment plus several months taxes.  The insurance company gets paid for one year out of the closing money and the other two months go into the escrow account.  You will, however, get a credit from the seller for any taxes that are owed by the seller but haven't yet been paid.  Taxes are typically paid either at the end of the year or in the spring of the following year.

Interesting. Thanks this explains a lot. Do they pay interest on this preloadmoney?

@Jeff L. asks:

Interesting. Thanks this explains a lot. Do they pay interest on this preloadmoney?

Not in any state where I've owned property.  Sometimes lenders will let you not use their escrow services.  But they typically have either fees or charge a higher interest rate on the loan if you do that.  They would explain that as the lack of an escrow account puts them at higher risk.

The general term for the money you have to bring to closing for the escrow account is called "pre paids".  This money doesn't just disappear.  It is your money.  If you want to pay off the loan, the outstanding escrow balance will be applied to the loan balance.  

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